Should we bail out underwater mortgages?

It's somewhat difficult to understand the efforts to address the plight of homeowners who are declared "underwater", that is who owe more than their homes are worth. Neither walking away from one's mortgage obligation nor foreclosing on a property is the best answer.

The value of one's home has nothing to do with one's ability to make mortgage payments. A mortgage is a loan, an obligation that must be paid back. Whether the value of the mortgaged property tumbles or rises has nothing to do with one's ability or obligation to repay the borrowed money.

No one would tolerate a bank, or any lender writing the following note:   

Dear Mr. Homeowner, 

We notice that the value of your asset (house) has increased in the past two years and the Federal Government has given us permission to increase your monthly payments. 

We will let you know the new terms of the loan and your new payments soon. 

Sincerely,
Your Friendly Bank. 

A homeowner can have trouble making mortgage payments due to illness, job loss or some other legitimate reason and compassion dictates that banks and borrowers try to work out terms to their mutual satisfaction. If the original sale or mortgage were based on deception and/or misrepresentation then that too would be a proper basis for voiding or at least re-negotiating a contract. 

But it's wrong to force wholesale rewriting of contracts because of falling market prices. Otherwise we could require the corporate issuers of stocks and bonds to buy them back at their original value when the market goes down and our retirement plans drop in value as a result. 

Those who hate government regulation of financial institutions and other business would be more correct to blame their successful deregulation efforts, (repeal of Glass - Steagall), for the disaster that engulfs Americans today.

We need more regulations but they must be more intelligently crafted and properly enforced if our goal is to prevent another disaster driven by corporate greed. And people need to understand that if they consider their homes solely as investments, well, investments aren't guaranteed. That's just the way it is.

Maybe It's Just Me     

  

An Easy Question

With all the tax talk, arguments, posturing, I'm loath to pose this question; Would you be satisfied if your town were able to avoid any property tax increases for the foreseeable future? Dare I say that most of us would be ecstatic. Legislators, town councils, mayors, school committees, union leaders, would pat themselves on their backs and bask in the glory of a "job well done" especially at Thanksgiving season.

Now that everyone is smiling and content, another question. What would be your reaction when your town is revalued and from one half to three quarters of you receive rather impressive tax increases? If your town receives no more revenue, where do those increases go? The answer is that other property owners will pay lower taxes. Such is the reality of even a 'perfect' revaluation. Properties change in value differently and since we tax those values, some people will pay more, some people will pay less, regardless of what happens to local spending, municipal union contracts, towns' expenses, towns' outside incomes.

With each revaluation, millions of dollars change hands, money flowing from one group of owners to another group of owners, completely unrelated to incomes, ability to pay, or any rational measure. And that's with normal revaluations. What happens with irrational ones? Anyone remember the recent financial meltdown?

The system must be changed to realize the true goal of any municipal tax; that everyone pay their fair share in direct relation to a community's needs. You can learn more at http://righttax.org

It's not a game.

Pension reform can create serious hardships for the thousands of public employees who worked hard and played by the rules. Union employees believe they are entitled to their negotiated pensions as promised.

There is some real merit to that position, as stated by union leaders and public employees who resent trying to fix the budget crisis "on the backs of hard working union workers".

There are even more taxpayers, retired and not retired, both unemployed and employed, struggling to make ends meet, who also resent having to pay those benefits to union employees; taxpayers who also play by the rules (has anyone seen the rules?) and who also resent those very generous benefit payouts levied on their hard working backs.

So what we have here is a contest, like a baseball game, where there can be only a winner and a loser.  In fact a recent quote by a union leader, when asked about his strategy in dealing with the upcoming pension solution to be laid out by Treasury Secretary Raimondo, responded that he wouldn't reveal his strategy just as any team manager wouldn't reveal strategy before a game.

A game. It's what our public policy battles have been reduce to - a game, a battle between powers where, if there's a winner there must be a loser.  Is this really what produces the best result for our citizens?

Truth is that most legislators act like they're playing only for their "team", Republicans v Democrats,  liberals v conservatives,  Progressives v Tea Party when instead they should be "playing" for the fans, all of them.

Sure there are greedy, dishonest, obscenely wealthy business men and women, but there are also wealthy people who are incredibly generous with their wealth, who support charitable organizations, who have helped grow and guide huge companies that provide employment and security for millions.

In the same vein there are dishonest police and lazy teachers who care nothing for their students, and welfare recipients who would simply refuse an honest job if it were offered. But there are also police who would give their lives to protect you, teachers who pay for student supplies themselves, and people truly deserving of unemployment benefits who would do anything to have a job to support their family.

Our politicians, and we too, are squandering the wonders of this great nation.

Maybe it's just me.

Create Jobs? Really?

In reading a Providence Journal Commentary, "Could Occupiers become next generation of entrepreneurs?", by John Robitaille, Friday, Oct. 21, Mr. Robitaille suggests that government should 'stop treating business owners as "revenue generators" and begin treating them as job creators'. Well, firstly, no companies, large or small, create jobs.  Jobs follow an increased need or want of either a company's products or services.  Jobs aren't widgets to be created.  

Before we can see real change, businesses must stop thinking of themselves as "revenue generators" and start thinking of themselves, first and foremost, as providers of services or products that are of value to the public or other businesses.  I'm afraid some businesses act as if the public exists for their benefit, to provide them with revenue.

As I occasionally had to remind myself and my staff, we must never forget that our patients do us a favor by seeking our help, not the other way around; we exist for their benefit, not they for ours.

Maybe it's just me.

Written in 2007. I still believe it.

Government is supposed to provide the services we can't provide for ourselves, like defending the country, maintaining roads, public education, public health etc.

How's it working?

We know for instance, that health care costs are skyrocketing. We in the U.S. spend more per capita than any other country in the world.

Unfortunately we also have millions of people with inadequate or no health coverage at all.

"Polarization"

To read the newspapers one would think that everyone in the county is hard working, honest and ambitious. The "Wikipedia" entry for hard working is revealing, very informative and worth reading.

Hardly a day goes by that doesn't contain a newspaper article lamenting the plight of the "hard working" people who can no longer afford to pay for entitlement programs.  One is left with the impression that all welfare recipients are leeches, living off the taxes of others, all of whom are hard working.

Truth be told, there are people who receive government assistance who are less than deserving; people who spend their benefits on alcohol and cigarettes, on candy and lottery tickets and whose children suffer as a result.

By the same token, there are tax payers who don't work all that hard.  Drive by a work site and it's soon clear that not everyone is working very hard, if at all. The policeman sitting in his cruiser, lights flashing, receiving regular pay, maybe even overtime pay. When was the last time an officer was actually needed to enforce some traffic violation? He could be replaced by civilian volunteer and a blinking lantern - maybe even just the lantern. But a union has made sure that won't happen regardless of the actual need for public safety.

It's no surprise then that a vocal backlash has emerged, powerful enough to have a significant impact on the direction of our government.  Sadly such polarization can have a terrible impact on what America is becoming.

We are thus faced with a choice.  Given that our laws are often poorly written and inadequately enforced, often to protect one group at the expense of the whole, we have to choose between paying for things we really don't need and can't afford on the one hand or hurting people who truly need and deserve government assistance on the other.

Lawmakers must help all the people instead of special interests. A few areas that need some help:

• If a less costly means (e.g. of traffic control) can do the same job, use it. Too often the job is just "make work" and not essential. That goes for administrative duties as well.
• If people on assistance are able to work, make work a requirement to receive benefits. They might even monitor a work site.  
• Provide free or low cost child care for such parents receiving assistance so they can work.
• Regularly review laws to determine their effectiveness and costs. Sometimes lawmakers can make a mistake. 
• If a person receives disability benefits make sure they are disabled. Why do I even have to write this?
• Decide if there's a difference between taking an illegal drug and killing someone. Killers have been sentenced to long sentences with less time to serve because jails are filled with petty drug convictions. Recent story in the Providence Journal where the sentence for murder was 15 years and the murderer was released after 6 1/2.

Surely there is much room for improvement in our government. Or have we become too incompetent or too stupid to govern ourselves?

Maybe it's just me.

"Time for a New Caucus?"

After reading the profiles of the newest members of the General Assembly it occurred to me that the most important characteristic they shared was their youth.  One might hope that a caucus based on a fresh perspective, enthusiasm, optimism and cooperation might be far more productive than one based on traditional views, entrenched positions and predictable philosophy.

I hope that they might work together in a New Caucus, free from the tyranny of authority, before they simply fade into the traditional behavior that has resulted in the stagnation we see all around us.

But maybe it's just me.

"Unintended Consequences"

In Tuesday's Providence Journal, ("Soda tax is good for us", June 27, Pg B7), Dr. David Maude says the soda tax "generates needed revenue for a bankrupt state, at the same time discouraging the intake of empty calories".

This presents a paradox.  If in fact, the tax does what is hoped, discourages the consumption of a product of little value and does harm, then it will fail in its other goal, to raise revenue. These two goals are in direct opposition to one another and mutually exclusive. I'm in favor of the tax but let's be honest about it, we'll either reduce consumption or raise revenue, not both.

As happens all too often in politics and life we don't think things through and we miss some of the consequences of our actions. Why didn't our leaders, in government and unions, anticipate the terrible problems created by their actions in past contract negotiations? Surely they didn't intend to destroy our cities, did they?

"Risk? What Risk?"

The news has been replete with examples of requests for protections against risk.

Insurers, especially health insurers for example, want to minimize exposure and look for ways to reduce risk by being selective in those they insure. It's natural and understandable if they want to maximize income. The costs of such 'guarantees' are borne by their customers of course. People at greater risk pay higher premiums or maybe can't even get insurance.

Mammoth corporations whose demise could devastate the economy claim that they are too big to fail and maybe they are right. They too have requested and received guarantees in the form of  emergency TARP funds while smaller companies receive state, federal and local tax breaks to entice them into an area.

Oil companies justify their huge tax breaks by pointing out that they take enormous risks and deserve to be compensated for those risks. Meanwhile they have announced the highest profits in history.

The Providence Journal recently mentioned legislation to protect municipal bond holders in the event of bankruptcies (Friday May 27, Page A7 "Senate approves bill on municipal bankruptcy"). Reducing the risk of buying bonds would help access to credit markets, it is believed.

What do all these have in common?  Risk. They are all efforts to reduce the inherent risk involved in what is, in many ways, gambling.

However, when the risk takers can reduce risk through various tax incentive programs, the people who provide those incentives with their tax money have a right to share in those huge profits that result. Those people however are struggling today, while the profits of the largest corporations and their executives' compensation packages have never been greater. There is something wrong with this picture.

The far right in this country howls that free enterprise is at stake, our very capitalist system is in danger if people, through their government, claim some of those profits. They characterize such efforts as harmful and suggest that companies will stop creating jobs, that rich people will move to places that don't require them to share those unheard of profits.

Sorry folks.  If corporate America accepts the people's money to help them reap historically high profits, then those corporations and their stockholders owe part of those profits back to the people who made it possible.

To be completely realistic one must acknowledge that special interest influence is not limited to corporate interests. Big labor has become what they were founded to counteract, just another group interested in only their own welfare.

Maybe it's just me.

"Tax Exempt Property"

From the RIGHTTAX website

There are many worthy organizations and businesses that do good works; churches, hospitals, universities and colleges and charitable organizations, all provide humane and important services and are rewarded with tax exempt status.

In such cases the property owned by these organizations and used in the performance of their routine functions is not taxed. Most agree that it is only right to provide support for these worthy organizations and the other businesses and residents, through their property taxes, pay the share of the tax exempts which also receive those benefits of road maintenance, fire and police protection, maintenance of public spaces etc.

Communities obviously vary in population, infrastructure, size, and industrial density. Because of this, some communities are more attractive to tax exempt organizations. On July 21, 2008, Providence City Council President Peter Mancini, in a special section to the Providence Business News said "We’re almost at 50 percent tax-exempt real estate". This means that just 50% of the property owners are paying 100% of the tax levy - their portion plus the portion of the tax exempts.

This is clearly unfair to the property owners of Providence and other towns with the larger percentages of tax exempt property.

One approach would be to charge fees to various organizations but it produces ill will and resistance and some groups will always feel they have been unfairly and unreasonably taxed. There is a lot of push back to efforts to authorize new local taxes on private colleges, universities and hospitals.

And if the extra revenue is used to fill holes in the budget instead of being used to bring relief to beleaguered tax payers, they too will feel betrayed. This piecemeal approach fails to deal with the underlying problem of unfair distribution of tax burdens.

It is for this reason that the following plan is offered for consideration:

•     The General Assembly shall require municipalities to determine the percentage of the total assessed value represented by tax exempt property hereafter referred to as 'favored' property.
•     Favored properties shall pay a percentage of the standard property tax equal to the percentage determined as above.
•     For example, if the total value of favored property is 14% of the value of all property then the tax on 'favored' properties shall be 14% of the normal tax. 

Wouldn't it be better to have a known and transparent system rather than what we have now, individual mayors and town councils working out a variety of different arrangements of PILOTS (payments in lieu of taxes) that vary from town to town, inconsistent and unpredictable?

Taxes would be levied in a manner that is sensitive to the value tax exempt organizations bring to a community while not unfairly burdening others whose property is not tax exempt.

The actual numbers used shall be determined by careful analysis so as not to be unreasonable to any of the involved parties while standardizing the process for all. The General Assembly can also provide for different rates depending on the nature of the organizations. Some could even remain tax free.