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Archive for the ‘Wasteful Government Spending’ Category

Bailout for Mortgagees: Here We Go Again, Part II

Posted by Steve Markowitz on March 26, 2010

Yesterday’s posting reviewed the problems related to the newest bailout for people behind on mortgage payments.  This program being announced by the Obama Administration is actually its second effort to bailout those who took on loans they could not afford.

In February 2009, President Obama announced the Home Affordable Modification Program (HAMP) that offered to reduce eligible homeowners’ monthly mortgage payments to 31% of their incomes, funded by the Troubled Asset Relief Program (TARP).  Irrespective of one’s view of the justification for bailing out imprudent behavior, this first attempt was a dismal failure.  CNNMoney.com posted a story titled: “TARP watchdog slams Obama foreclosure program” that includes the following comments and conclusions (full posting linked below.):

  • According to the Special Inspector General for TARP, Neil Barofsky, HAMP “may even do more harm than good”.
  • The Treasury Department’s targets weren’t “meaningful,” mismanaged the implementation of the program, and now risks a substantial number of “re-defaults,” says Barofsky.
  • Barofsky claimed the Administration did a poor job rolling out the program and made loan modifications before documentation and verification of incomes were completed.
  • According to the Treasury Department, 40% of homeowners in the HAMP program will re-default.
  • Absent a thorough review of HAMP and its goals, the program risks helping few, and for the rest, merely spreading out the foreclosure crisis over the course of several years, at significant taxpayer expense,” Barofsky said.

The conclusions of the TARP Inspector General are sobering.  They are but another example of the Obama Administration’s lack of experience and naive belief that they can will their way to problem resolution.  In a more general sense, HAMP’s failure is another example of governments’ inability to control economic realities and the laws of Supply and Demand.  Just think what their meddling will do for healthcare!

The storey of HAMP’s failings does not end here.  When questioned about Barofsky’s criticism of the Program, Assistant Treasury Secretary Herbert Allison disagreed with the usual bureaucratic excuses and then made the following statement:

“The success of HAMP should be measured by how many eligible homeowners are able to avoid the pain and stigma of foreclosure by reducing their mortgage payments to affordable levels while either remaining in their homes or transitioning with dignity to more suitable housing.”

This is remarkable and revealing.  When President Obama unveiled HAMP he sold it to Americans based on the fear that without it more serious economic calamities would occur.  Well, the program did not work and guess what, the calamities did not occur.  Further, the Assistant Treasury Secretary now says that HAMP’s success will “be measured by how many eligible homeowners are able to avoid the pain and stigma of foreclosure by reducing their mortgage payments”.  Did HAMP’s goals change since Obama announced the Program or was the President being disingenuous when he stated the reasons for it?  In either case, assisting those who acted imprudently was not what the American people bought into.  And these knuckleheads in Washington wonder why the anger is building.

TARP watchdog slams Obama foreclosure program

Posted in Bailouts, Banks, Mortgages, Wasteful Government Spending | Tagged: , , , , , , , , , , , | Leave a Comment »

Feds/Progressives Take Over Student Loan Program

Posted by Steve Markowitz on March 22, 2010

In recent weeks the Country’s attention has been focused on the government’s attempted takeover of America’s healthcare system.  This focus masks the larger challenge as Progressives have been implementing a broader plan to transform America into a European style socialist system.  The evidence is convincing.

Progressives started their assault on capitalism with a soft sell approach.  Realizing that America would never outwardly accept socialism, for decades they nibbled at the edges as they succeeded in adding a handout program here and there and then expanding coverage for these seemingly benign programs.  The purported goals for these programs was humanitarian; to help the less fortunate.  As a wealthy country, how could we not help our fellow citizens?  But there were more insidious goals behind these seemingly separate governmental programs: to make more people dependent on the government.  The Progressives understood that you own (and they vote for) people who offer the handouts.

What started as programs for the “needy” slowly became more mainstream. We would give subsidizes to farmers and other industries we deemed “important”.  Then we would add programs for more middle-class Americans.  With each new program we would also need a growing group of workers dependent on government “industries” for distributing funds and services, another beholding group.  The Progressives would let this growing industry organize so that these labor unions would support the Progressive politicians who in turn would let the unions grow and collect more dues.

With the popping of the housing bubble and the economy’s rapid downward spiral, the Progressives in the federal government got the opportunity of a lifetime.  In the chaos that followed, they bailout large corporations making them wards of the state.  Bailout General Motors and they must do the government’s bidding.  Bailout banks and the government “owns’ them.  Bailout states and the federal government could control their spending too.

The healthcare industry, one-sixth of our economy, caused a hiccup in the Progressives march.  This industry didn’t need a bailout making governmental control problematic.  No problem: the Progressive-in-Chief, Barack Obama, created a crisis by telling Americans we all need a bailout (saving) being offered by the just passed healthcare overall bill.  While it wasn’t easy sell, the backroom deals are leading us down the planned path.  Starting to see a pattern here?  Just coincidence?  But wait, they aren’t finished yet.

While not given much air time, there are surprises in the healthcare bill.  Take for example the government’s takeover of the student loan program.  CNN Newsroom’s Kyra Phillips reported that weaved into the bill is language that would require all federal student loans to originate with the government.  According to Phillips, The measure also reaches beyond health care to education. Another one of President Obama’s top priorities – it will offer new help to needy college students”. Phillips went on to report that the change will save the government money in the future by eliminating the middleman.  Sure Mr. Phillips, every program the government creates is initially touted as a money saver.  But it never happens!  And by the way Mr. Phillips, the government employees who now make more than their private industry counterparts are not middlemen?  Really!  I wonder if you also believe in the tooth fairy?

OK, so you ask: What does the student loan program have to do with healthcare reform?  Absolutely nothing.  However, it does fit in nicely with the Progressives’ desire to socialize our economy and have the government manage all aspects of it.

When this President said just prior to his election that we were: “Five Days Away from Fundamentally Transforming America “ he meant it.  Now many who voted for the Progressive-in-Chief are having buyer’s remorse.  They expressed this in the gubernatorial elections in New Jersey and Virginia and the senatorial election in Massachusetts.  But Washington isn’t listening.  Oh yes, that’s another thing about Progressives, they know better than the people.

Posted in Bailouts, Capitalism, Government Handouts, healthcare reform, Progressives, Wasteful Government Spending | Tagged: , , , , , , , , , , , | 2 Comments »

Calpers, Pensions, etc. – Part II

Posted by Steve Markowitz on March 17, 2010

Yesterday this Blog posted an article about the problems the country has on the issue of pensions supplied by various government agencies for their employees.  Specifically, it addressed the huge liabilities that are being placed on taxpayers, yet are not being properly funded setting the stage for another major financial crisis.  Reader response has been very gratifying, as the purpose of this Blog is to foster discussion about the problems we as a country face.  One response was particularly enlightening and I have posted it below.  It’s a must read for all.  Thanks Tough Love for a dose of reality!

Tough Love said

March 17, 2010 at 12:50 PM e

State & City Budgets are stressed all over the nation with supposed one-time “fixes”. Let me tell you something … this isn’t going to be a one-shot fix. Most States, cities, & towns have a FUNDAMENTAL structural problem which MUST be addressed.

Long ago, Civil Servant “cash” pay was quite a bit less than Private Sector pay in comparable jobs. This justified a better pension & benefit package.

Per the US Gov’t BLS, cash pay alone is now higher in the Public Sector than in the private sector. This justifies AT MOST comparable (but certainly NOT better) pensions & benefits.

More valuable Public Sector pensions comes from multiple sources: (1) higher formula per year of service, (2) basing pensionable compensation on the final 1 year instead of 3 or 5 years of service, (3) including post retirement COLAs, (4) arbitrary end-of-career promotions or excessive raises to “spike” the pensionable compensation, (5) allowing the soon-to-be retired to load up on overtime includable in pensionable compensation, (6) including payouts of unused vacation, unused sick days, uniform, parking, and other miscellaneous “allowances” in pensionable compensation, etc.

In MOST Corporate Pension Plans NONE of the above are included. Why? Because the cost would have to be paid for by the employer, and none of these being really justified, employers are not foolish enough to waste THEIR money this way.

In the Public Sector ALL, of the above are generally included/allowed. Why? Our Politicians aren’t spending THEIR money, their spending YOUR money (via your taxes) while they curry favor for campaign contributions and election support.

Sometimes, Corporate Sector Pension Plan sponsors realize that the plan is no longer affordable, so they reduce cost via formula reductions, increases in the retirement age, etc., for NEW employees and for FUTURE years of service for CURRENT (yes CURRENT) employees. This is ROUTINE in the Private Sector and is allowed by ERISA (the Federal Law that governs Private Sector Plans).

Just as in the Private Sector, CURRENTLY EMPLOYED workers in the Public Sector have already “accrued” pension benefits for PAST service. To this will be added benefits for FUTURE years of service. However, in the Public Sector (and there are variations from State to State) the ability to reduce the pension formula for FUTURE years of service for CURRENT employees is “questionable”.

Of course, the employees and their Unions say it cannot be reduced for anyone already employed (even for those very recently hired). There are many variations, e.g., NJ’s Office of Legislative Service said that cannot be changed only for current employees who already have 5 years of service. In some States, the rules that govern such potential Plan changes are in the State Constitution. In others, in Laws/Regs., and in others via Court Case law.

One important consideration in examining the DIFFICULTY in reducing pension for (FUTURE years of service ONLY) for CURRENT employees is that the legislators, judges, and staff (such as in the NJ example above) that “opine” that such reductions are not allowed are THEMSELVES participants in these same pension Plans and would be negatively impacted by such formula reductions.

Hence, they are hardly disinterested parties, but come with a built-in conflict of interest. These persons should not be making decisions that favor THEM (as beneficiaries of their own decisions) but add to the taxpayers’ burden.

The financial situation across the country is getting more dire, and the ROOT CAUSE must be addressed. Stated another way, we must once and for all, address the STRUCTURAL imbalance between income and expenses.

Way too much focus has been placed on the government entity’s neglect to “fully fund” the Plans. This is certainly true (to varying degrees across the nation). What is often given short-shrift is the “expense” side of the income statement. No one ever says …gee … funding a VERY generous pension plan is VERY expensive, and then moves to the logical next questions, that being, is it too expensive BECAUSE it is too generous and perhaps we such make it less generous.

But what exactly is “too generous”? Well, given that “cash” pay in the Public Sector now exceeds that of the Private Sector in comparable jobs, maybe a Public Pension Plan that is more than MARGINALLY higher is too expensive.

Above, I enumerated 6 items which make Public Sector Plans more expensive. Few people not educated in pending funding understand just how VERY valuable (and hence EXPENSIVE) these differences are. One thing is certain, the Public employee Unions know. That’s why they fight tooth-and-nail to stop changes.

Here is an accurate comparison of the costs of Public vs Private Sector retirement packages (pension plus retiree healthcare, if any) …. The value (i.e., cost to purchase the pension/benefit package) at the time of retirement of the employer-paid (i.e., Taxpayer) share of the typical (non-safety) worker’s retirement package is 2-4 times that of employer-paid share of the comparable (in pay, years of service, and age at retirement) Private Sector worker, and that multiple increases to 4-6 times for safety workers (policemen, firemen, corrections officers, etc.).

I’ll bet you had no idea that this HUGE disparity exists. Given that it does, and given that Public Sector “cash” pay by itself is higher, is it surprising that States, cities, towns are being so squeezed to fund this? Not at all.

So what is the solution? Of course Civil Servants deserve “fair” pay as well as “fair” pensions & benefits, but “fair” should mean COMPARABLE to what their Private Sector Taxpaying counterparts get. Right now, this is anything but true.

The EXPENSE side of the income statement has been neglected far too long. To reach a “structural balance” we need to reduce current pensions (as well as retiree healthcare subsidies) in the Public Sector to a level comparable to that of the Private Sector. A few more progressive States & Cities (or perhaps, those in the greatest financial pain) know they must look at this and are beginning the baby steps.

But the BIG problem is the conflict-of-interest conundrum that reducing pensions for CURRENT employees will (in many cases) reduce there own pensions. So, they ONLY propose plan reductions for NEW employees. To be fair, this may be happening not because they just “cave” on addressing such reduction, but because they really believe it is not possible.

A disinterested party might look a bit harder. Perhaps we need to get opinions from outside this circle, e.g., from university scholars. Or perhaps challenges should be brought in the Federal Court system where the conflicted parties are no longer the decision-makers.

Not addressing the huge cost of future accruals for current employees is wishing-away current financial reality. The dire financial problem is here NOW. Reducing pensions ONLY for NEW employees will have little impact for 20-30 years until they begin to retire. We will never make it. But also, given that most (objective) observers agree that current pensions & benefits are overly generous (compared to Private Sector plans … while appropriately taking into account compensation levels), why should we CONTINUE to layer on MORE excessive pension accruals?

It’s been said that the first step in getting out of a big hole is to STOP DIGGING. Well, every day we allow the current plan to continue, the hole gets deeper.

Somehow we need to find the way to reduce pensions (not for PAST) but for FUTURE years of service for CURRENT employees. That, along with a significant reduction in the retiree healthcare subsidy just MAY save us.

Posted in Bailouts, California Public Employees’ Retirement System, Calpers, Debt, Deficits, economics, Pension Funds, Politics, Wasteful Government Spending | Tagged: , , , , , , , , , | 2 Comments »

We Were Robbed!

Posted by Steve Markowitz on July 28, 2009

During the last few weeks we have heard two leading Democrat Senators, who happen to be women, make bloody fools of themselves.  You got it; Ms. Barbara Boxer and Ms. Nancy Pelosi, two intellectually heavy-weights.kaptur

Fortunately, just the opposite came from Democrat Congresswoman from Ohio, Ms. Marcy Kaptur.  She laid it on Hank Paulson at a recent hearing in a way that was concise and to the point.  He didn’t have a chance!

Take six minutes and watch Ms. Kaptur.  I have supplied the link below.  That will be enough time to understand that we have been taken.  Unless things change radically and the American people start focusing on the big picture over individual needs, we will continue to be robbed as a group.

Apathy is the most dangerous threat we face.

http://www.youtube.com/watch?v=ro_PjGqy2_w

Posted in economics, Wasteful Government Spending | Tagged: , , , | 4 Comments »

What Did $60 Billion Buy Us?

Posted by Steve Markowitz on July 27, 2009

General Motors (Government Motors) exited bankruptcy after receiving a nearly $60 billion of taxpayer bailout.  What have we gotten for our investment?

First, an opinion.  It is appalling that a failed company should receive any taxpayer funds for poor business practices.  GM’s problems began long before the current economic meltdown.  They and their unions made decisions that lead to the company’sAutofailing.  The bondholders, shareholders, executives, and yes the employees, should pay the price, not taxpayers.  However, the Obama administration has instead played a dangerous game of deciding which of the stakeholders will pay and how much.  The unintended consequences of this action down the road will be more severe than if the government did not meddle in this complex issue.

Clear-thinking logic says that if the government is to reward any company with corporate welfare, it should be successful ones.  This shows an inherent problem with governmental intervention.  Governments tend to reward failure where the private sector, when devoid of government intervention, rewards more successful ones.  Only this second approach benefits society in the long term. Read the rest of this entry »

Posted in Capitalism, Wasteful Government Spending | Tagged: , , , , , , , , , , , , , , , , , , | 4 Comments »

Senate Strips $1.75 Billion for F-22’s

Posted by Steve Markowitz on July 21, 2009

The Senate today voted 58 – 40 to delete spending for seven more F-22 warplanes.  Eliminating F-22 spending was favored by President Obama, Defense Secretary Gates, Senator John McCain and others.  This was a wise choose, as the following brief facts about the F-22 indicate. Read the rest of this entry »

Posted in Wasteful Government Spending | Tagged: , , , | Leave a Comment »