Econ-Recon: July 2007: Archives

July 31, 2007

Dems Keep Promise: House Passes Ethics Bill genre: Econ-Recon & Polispeak & Six Degrees of Speculation

What Pork?

When Nancy Pelosi stated that this Democratic Congress would be "the most honest, ethical, and open Congress in history", I'll admit I was skeptical though hopeful. Not long ago, I wrote that the much touted ethics reform seemed to be missing in action but today it looks like the Democrats have delivered much of what they promised with the passage of a comprehensive Ethics Bill.

While it appears that the bill may have omitted some of the reforms that have been discussed and suggested, for the most part, the legislation should be a huge step towards limiting the practice of purse string politics. Additionally, passage of the measure should help to bolster the dismal approval ratings of Congress and provide the Democrats with another achievement to tout in their 2008 election efforts.

The bill, drafted by Democratic leaders, passed by a vote of 411 to 8. It would require House and Senate members to disclose those lobbyists who raise $15,000 or more for them within a six-month period by "bundling" donations from many people. It also would bar lobbyists and their clients from giving gifts, including meals and tickets, to lawmakers.

Senators seeking targeted spending projects or "earmarks" would have to publicize their plans 48 hours before the Senate votes on the proposals in publicly available data bases, and declare their families would not directly benefit financially. The House made similar changes to its rules governing earmarks in January.

House members approved the new legislation even though some privately grumbled that it would complicate their fundraising efforts. Senate leaders expect opposition from some conservative Republicans, but they predicted final passage of the measure by week's end.

Sen. Tom Coburn, R-Oklahoma, signaled the bill will meet resistance in the Senate. It "guts key earmark reforms that both houses of Congress approved overwhelmingly," he said.

Coburn particularly objected to a revision that would allow committee chairmen or the Senate majority leader -- not the Senate parliamentarian -- to rule on whether earmark disclosure requirements have been met.

No doubt there will be efforts to subvert the intent of the bill as politicians, driven by the need to raise campaign funds, will look for loopholes to exploit. Hopefully, the measure can be the first step towards refocusing elected officials on public service and good governance rather than the perpetual need to pander to powerful interest groups who dangle perks in exchange for pledges of financial support.

More importantly, I would hope the renewed focus on ethical behavior would begin to shift voter perceptions. Unfortunately, many voters have become so disenchanted with the state of affairs in Washington that they see little difference between the two parties and therefore even less reason to vote. That complacency has become a tacit acceptance of the bad behavior and an opportunity for politicians to further push the limits of propriety.

Lastly, while many constituents have grown to accept pork barrel politics...the practice of attaching earmarks to legislation for the funding of pet projects intended to benefit those they represent, perhaps politicians can begin to think beyond the narrow objectives that have made it more difficult to pass important measures.

For example, when efforts to require vehicles to achieve better mileage efficiencies are repeatedly defeated by politicians from those districts in which automobile manufacturing is a mainstay of the economy, the goal of reducing our dependence on foreign oil is thwarted. When that happens with virtually every issue, progress on overarching national issues becomes cumbersome, if not impossible.

Hopefully, this step towards reform will reduce the influence of special interest groups and allow elected officials to address important issues that have become mired down in the minutiae of manipulative lobbying.

For this legislation to work, voters will also need to adjust their "what's in it for me" mindset. The days of overlooking the unethical actions of one's representative because he or she was able to "bring home the bacon" must cease to exist. While it is easy to blame our elected officials, isn't it also time for voters to admit our role as enablers and recommit ourselves and our country to the advancement of the greater good?

Tagged as: Corruption, Earmarks, Ethics Reform, House of Representatives, Lobbying, Nancy Pelosi

Daniel DiRito | July 31, 2007 | 11:43 AM | link | Comments (0)
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July 25, 2007

Housing Sector Continues To Threaten Economy genre: Econ-Recon


Despite Federal Reserve Chairman Bernanke's efforts to soothe concerns about the housing industry and the sub-prime lending crisis, the latest home sales figures paint a picture that may signal a much broader economic downturn. Recent indicators suggest that the worst may well be yet to come.

WASHINGTON - Sales of existing homes fell for a fourth straight month in June and even a small increase in home prices was not enough to lift the gloom surrounding the housing industry.

The National Association of Realtors reported that sales of existing homes dropped by 3.8 percent in June to a seasonally adjusted annual rate of 5.75 million units, the slowest sales pace in 4½ years.

Federal Reserve Chairman Ben Bernanke told Congress last week that he expected housing demand to stabilize and housing to be a less severe drag on growth in the coming months.

However, private economists said the existing home sales report raised serious questions about that assessment. They noted that existing home sales were falling at an annual rate of 28 percent in the second quarter, the steepest plunge so far in the downturn.

The Realtors are forecasting that sales of existing homes will fall by 5.6 percent this year with prices dropping by 1.4 percent. That would mark the first annual price decline on record.

Lawrence Yun, senior economist for the Realtors said that if the price decline turns out to be greater than he is forecasting that would raise concerns that consumers could cut back on their spending by enough to raise worries about a possible recession for the overall economy.

Yun's forecast may be accurate though the bulk of recent news with regard to the housing industry and the economy has been worse than anticipated...suggesting that the guarded optimism may be unwarranted.

I'm inclined to think that the bottom has not yet been found and that the sub-prime lending mess coupled with slow home sales and questions about declining home prices will lead to reduced consumer spending. If that occurs, the entire economy would be impacted and that could lead to advancing recessionary pressures.

I worry that the recent boom years in the housing industry resulted from artificially low interest rates that cannot be sustained. Those rates afforded many consumers the ability to spend more money which kept the general economy growing. If the housing industry continues to suffer and access to mortgage products becomes more restrictive, consumer liquidity will drop. If this scenario were to become pervasive, a recession is plausible.

Tagged as: Ben Bernanke, Economy, Federal Reserve, Foreclosures, Housing, Interest Rates, Real Estate, Sub-prime

Daniel DiRito | July 25, 2007 | 9:42 AM | link | Comments (0)
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July 19, 2007

S&L Deja Vu: Sub-Prime Loan Market Set To Implode? genre: Econ-Recon & Six Degrees of Speculation


If you were around during the late 80’s you have an appreciation for the magnitude of the Savings & Loan Scandal. If you weren’t around, you may get an opportunity to see it firsthand as a result of the sub-prime lending debacle that is just beginning to unfold.

Federal Reserve Chairman Ben Bernanke warned legislators that the problem is significant…and if I may be so bold…he is doing his best to tamp down the alarm for an issue that is about to become a front and center economic crisis.

Federal Reserve chairman Ben Bernanke has warned that the crisis in the US sub-prime lending market could cost up to $100bn.

In a second day of testimony to Congress, Mr. Bernanke said credit losses associated with sub-prime mortgage failures were "significant".

"The credit losses associated with sub-prime have come to light and they are fairly significant," Mr. Bernanke told a Senate Committee.

The Fed's handling of the sub-prime market, which it regulates, came under fire from Senators who argued it should have done more to protect vulnerable consumers from inappropriate and improper mortgage practices.

Mr. Bernanke said the Fed was reviewing current regulations on lending practices in a "responsible" manner.

The Fed remained "alert" for any signs that housing weakness may destabilize the economy as a whole, Mr. Bernanke added.

The problem is not dissimilar to the S&L debacle as it stems primarily from a lack of oversight of the lending industry. In the case of the sub-prime market, it has been a virtual free for all for mortgage brokers and lenders. Some 1.3 trillion dollars is now tied up in loans that are considered to be suspect. Those loans were issued to borrowers with inadequate credit and an insufficient historical demonstration of an ability to make the payments required by the loans.

Unfortunately, brokers aren’t often motivated to monitor the fiscal worthiness of the business they transact and they are also frequently compensated based upon the dollar value of the loans they initiate…which often means that their objectives are likely to be in conflict with sound lending practices.

Moving up the chain of command, managers of mortgage brokers often receive some of their compensation from the dollar value of the loans written by their subordinates which will further compromise the veracity of the process. As with many businesses, prosperity often leads to drift…drift from sound practices…drift from adequate oversight…and drift towards a disregard for the consequences of mismanagement.

As it becomes evident that a problem exists, human nature kicks in and people from top to bottom look for loopholes to repair the damage. During the S&L Scandal, lenders frequently rewrote bad loans under different ownership entities and flipped bad loans back and forth with other lenders in order to minimize their defaulted portfolio and avoid the scrutiny of auditors and regulators.

At its worst, virtually everyone benefiting from the industry becomes complicit in avoiding the inevitable collapse and the fine line of criminality becomes blurred and before long it is no longer a deterrent as people scramble to survive the approaching implosion.

If the sub-prime crisis unravels in a manner similar to the S&L Scandal, the magnitude of the mess will become visible at a point when the damage has reached a level that turning back is impossible. While I can’t predict the future, I do recall the past…and everything I’m witnessing…such as the slow release of ever more ominous projections, the attempts to minimize the pending impact, and the suggestions that the situation is being closely monitored…all lead me to believe that the dice have been rolled and all that remains is for someone to utter the word no one wants to hear once things come to a halt…craps!

Daniel DiRito | July 19, 2007 | 5:43 PM | link | Comments (3)
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July 2, 2007

iPhone Premiere: Is It Real Life Or Is It Mad TV? genre: Econ-Recon & Indie-Script & Nouveau Thoughts

I'll admit that I like new technology...but I had to laugh at the iPhone hysteria over the weekend. As much as I like innovation, you would never find me standing in line at the launching of a new product. I think the following video clips offer some insight into the phenomenon.

The first is a skit from Mad TV in which Steve Jobs is unveiling the new iPhone to the Mad TV studio audience. Note the hysteria of the audience and the mob mentality...people feeding off of each others frenzy. If you've ever seen an episode of Oprah and watched when she announces that the studio audience is going to receive a gift, you'll no doubt see the similarities.

The second is a clip outside of an Apple store in New York City just as the doors are being opened to begin selling the new gadget. As you watch this clip, note the actions of the shoppers as they enter the store and head up the stairs. Many of them are taking pictures, shooting video, and seemingly taking their victory lap in front of adoring fans. Would it be safe to call these events modern rituals?

The last clip is a commercial spoof that Conan O'Brien did on his show a few months back. The thing that fascinates me about all of these clips is the degree to which the comic skits capture what I would call the absurdity of such situations. It's a priceless glimpse into human psychology and our culture's preoccupation with celebrity and notoriety. I'm not exactly sure that being one of the first customers to buy an iPhone should be the equivalent of a hero's parade...but it certainly looks like one.

I wonder to what degree the attention and the simulated hero's welcome plays in the motivation to stand in line and purchase an iPhone or any other product that draws this kind of coverage. Are these people simply tech geeks or does buying the product and being able to tell others that they were there and that they bought one serve to bolster some psychological need? Does the purchase of a $600.00 iPhone provide the same therapeutic boost one might get from a couple visits to the psychologist?

Feel free to share you own observations as I would love to know how you view these kind of situations and what you think they say about our society and our culture. My goal isn't to make fun of anyone that bought an iPhone this weekend but to understand the psychology that is at work. Maybe there's nothing to it at all...but it sure triggers my curiosity with human nature.

Mad TV Skit - Steve Jobs Introduces The iPhone

Outside An Apple Store In NYC

Conan O'Brien iPhone Commercial

Daniel DiRito | July 2, 2007 | 9:56 AM | link | Comments (0)
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