Thursday, February 25, 2010

Why health reform is an issue for younger voters

The Pew Research Center released a report on the Millennial generation yesterday - that's those folks presently aged 18-29. At age 29, I am the oldest member of the generation. Pew mentions that many Millennials are confident in the economic future of America despite having their careers badly set back by the recession.

Fellow Millennials: our economic future is contingent upon us passing health reform. Without meaningful health reform, it all goes down the toilet.

Today, Kaiser Health News linked to several reports showing that one in three adults aged 20-29 is uninsured. We are the largest single chunk of the uninsured.

In one or two states, Minnesota being one, dependent children can stay on their parents' health insurance plans up to age 26. After that, you get kicked off. Alternatively, if you marry before that, as many people do, you get kicked off.

Normally, people our age would graduate from college and get jobs. These days aren't normal. Pew indicates that at the moment, 22% of 18-29 year olds are unemployed. 24% of us are working part time, and you can bet a lot of those would rather be working full time. These figures are higher than for both older cohorts, the Gen Xers and the Boomers. Of those of us who are employed, 31% of us say we are making enough money to lead the kind of life we want. We are far more likely to change jobs than older cohorts. Many of the jobs we are working in will not be with large employers who offer employer-sponsored health insurance - the most stable and functional part of the present health insurance market.

We need an individual market that offers us choice and portability, whether we are coming into it for the first time or sticking with it for a few years. We need subsidies to be able to afford health insurance. The health reform bills that the Democrats have proposed would do that. The Wyden-Bennett bill, which has some bipartisan support, would also do so - W-B is a more radical proposal in that it would essentially destroy the employer-sponsored system within a few years, so I'd be cautious about this; the link goes to the Center on Budget and Policy Priorities analysis of the bill.

None of the proposals that the Republicans have put forward would do so. The recent bill they released that would cover a net 3 million additional people would merely weaken the quality of coverage we could buy. Overall, 3+ million young and healthy folks would now find insurance cheap enough to afford. However, some less healthy and older people would now be unable to afford insurance. Trust me, any of us could develop a chronic disease. And all of us are aging by the second. Senator McCain's campaign proposal is the Republican plan that comes the closest to helping people of our generation. It would end the tax exclusion for employer-sponsored insurance and give everyone a voucher to buy insurance. Many Millennials would be able to buy coverage. However, the McCain plan made no modifications to the insurance marketplace to end discrimination by health status - meaning that if you had a bout of depression, which is one of the most common illnesses known to humankind, insurance companies might well refuse to cover you. Or if you had a bout of asthma, or you developed diabetes.

If the Republicans were truly interested in good governance and compromise, then they could back either the Wyden-Bennett bill, or the bill proposed by the Bipartisan Policy Center. Either of these plans is workable. The current Senate bill looks a lot like the BPC bill. Or they could propose modifications to the bill - perhaps they could suggest a tougher version of the excise tax and tougher cost controls coupled with removing some of the taxes on unearned income.

I'm just throwing some suggestions out there for them. However, I listened in on the health reform summit. Truly, it does not sound like the Republicans are able or willing to admit there is a problem with our health insurance system. They probably do not care about the 45 million or so uninsured people.

Again, health reform is a key issue for Millennials. Many of us are one serious illness or accident away from bankruptcy. The future's not going to look so bright with a ton of medical debt. We need reform, and we need it right now.

Wednesday, February 24, 2010

Katherine Baicker and Amitabh Chandra: Malpractice reform would only have a limited effect on medical costs

Professors Katherine Baicker and Amitabh Chandra, of Harvard's School of Health Policy and Management and Kennedy School of Government respectively, speak about the effects of malpractice and malpractice insurance premiums on health care costs. They conclude that while the effect is not zero, the Republicans may be overstating their case:

There is a great deal of public debate about potential reforms of the malpractice system. A closer look at available data sug- gests that some of the rhetoric surrounding this debate may be misleading. First, increases in malpractice payments do not seem to be the driving force behind increases in premiums. Second, increases in malpractice costs do not seem to affect the overall size of the physician workforce, although they may affect some subsets of the physician population more severe- ly. Furthermore, no research has linked the decline in physi- cian supply to worse health outcomes or reduced patient sat- isfaction. Third, we find evidence that the strongest effect of greater malpractice pressure is in increased use of imaging services, with somewhat smaller effects on the use of other discretionary, generally low-risk services such as physician visits and consultations, use of diagnostic tests, and minor procedures. We find little evidence of increased utilization of major surgical procedures.

While our study does not speak directly to the effect of malpractice reforms, it does provide insight into the mecha- nisms through which those reforms are likely (and unlikely) to operate. Our analysis suggests that state-level tort reform is unlikely to affect the practice of medicine by averting local physician shortages. We also find no relationship between the level of malpractice premiums and the presence of traditional tort reform measures such as damage caps. This evidence does not imply that traditional tort reform measures are inef- fective, for they may have reduced the growth of (perhaps unusually high) premiums in the states where they were enacted. However, our results do call into question the view that states with traditional tort reforms have lower levels of premiums or defensive medicine than states that have not implemented such reforms. Last, while increasing malprac- tice liability pressures do seem to substantially increase expenditures on diagnostic procedures, we find little evidence that malpractice payments are driving the dramatic increase in overall health care expenditures.

The American Conservative: His-Panic

The American Conservative debunks the myth that Hispanic immigrants have seriously higher crime rates than the rest of the population.

NYT: Gentle Nudges Test White House Power of Persuasion

Sheryl Gay Stolberg writes for the New York Times. I invite readers to consider whether the President's preferred leadership style, as outlined here, is suitable for Congress in its current state.

WASHINGTON — Tempers were fraying in the White House Cabinet Room as night turned into morning on Jan. 15. President Obama had been cloistered nearly all day with House and Senate Democrats, playing “marriage counselor,” an aide said, as he coaxed, cajoled and prodded them on a health care overhaul.

As the clock neared 1 a.m., the two sides were at an impasse. Mr. Obama stood up.

“ ‘See what you guys can figure out,’ ” one participant remembers him saying, adding that the failed effort left the president mad. Another Democrat who was there, Representative Henry A. Waxman of California, said Mr. Obama left “frustrated that while he was putting out ways to bridge the problem, we hadn’t reached a conclusion.”

Ever since his days as a young community organizer in Chicago, Mr. Obama has held fast to the belief that by listening carefully and appealing to reason he can bring people together to get results, an approach that in Washington has often come up short.

He is not showing any signs of changing his style. But he is facing perhaps the toughest test yet of his powers of persuasion: winning the votes he needs, in the face of unified Republican opposition and a deteriorating climate for Democrats, to push his health care measure through a skittish Congress.

Mr. Obama has not been the sort to bludgeon his party into following his lead or to intimidate reluctant legislators. And while he has often succeeded by relying on Democratic leaders in Congress to do his bidding — the House and Senate, after all, both passed versions of the health legislation last year — it is not clear whether his gentle, consensus-building style will be enough.

“I wouldn’t mind seeing a little more toughness here or there,” said Representative Louise M. Slaughter, a New York Democrat, who contends that if Mr. Obama had pushed the Senate harder last year, the bill would have been law by now.

Like many Democrats in Congress, she praises Mr. Obama as intellectually gifted and a generous listener. But “if you are asking me if he dominates the room,” she said, “I would have to say no.”

White House officials strongly resist any suggestion that Mr. Obama is not tough enough, and they say the days are gone when a president can simply browbeat his own party into submission, especially on an issue as complex as health care.

“If the president weren’t tough, if the president weren’t committed, if the president didn’t believe that this was an imperative for the future of American families, businesses and the sustainability of our budget, this thing would have been dead six months ago,” David Axelrod, Mr. Obama’s senior adviser, said in an interview. “I would love to live in a world where the president could snap his fingers or even twist arms and make change happen, but in this great democracy of ours, that’s not the way it is.”

One of the most persistent criticisms of Mr. Obama, especially on health care, is that he has given Congress too much latitude to engage in backroom deal-making and expedient trade-offs. His critics suggest that they want him to step forward more assertively to put his stamp on the process and the legislation.

But his defenders and some historians say that perhaps more than any modern president since Lyndon B. Johnson, Mr. Obama has been aggressive in trying to work his will with Congress. During his 13-month-old presidency, he has had countless one-on-one meetings with lawmakers — a technique that some scholars and strategists say evokes memories of Johnson, though their styles could hardly be more different.

“People make the L.B.J. analogy,” said John D. Podesta, who worked as chief of staff in the Clinton White House, “but the world is a lot different than it was during the 1960s. The president actually has to bring people along because they think it’s the right thing to do, because they think it’s in the interest of the country but also their own self-interest. His style is to convince people, not threaten them.”

If Johnson was a physical force — an arm around the shoulder, a full-body lean, a finger poking into the chest — Mr. Obama is an intellectual one. Members of Congress do not find him intimidating; they are more apt, said Senator Byron L. Dorgan, Democrat of North Dakota, to view him as “a friend.” And while he shows occasional flashes of anger — “There is a sort of steel in his voice,” said Representative Steny H. Hoyer, the House Democratic leader from Maryland — his emotions are always contained.

While courting Senator Olympia J. Snowe, Republican of Maine, on the health care bill last year, Mr. Obama kept her in the Oval Office for an extraordinary 90 minutes. (She voted no.)

When Senator John D. Rockefeller IV, a West Virginia Democrat, hinted that he would vote against the Finance Committee’s health bill, Mr. Obama laid the personal attention on thick.

During their private Oval Office meeting, they sat side by side, the senator said, in front of the fireplace and underneath a portrait of George Washington, in the blue and beige striped chairs Mr. Obama uses when he meets with foreign leaders. Mr. Obama briefly rested his hand on the senator’s arm when making an important point — the same kind of gesture, Mr. Rockefeller said, that he uses to connect with voters back home. He made no promises, but Mr. Obama got his vote.

“Un-dictatorial, un-Caesar-like,” he said, describing Mr. Obama’s style.

Gerald Kellman, who trained Mr. Obama as a community organizer in Chicago and taught him the organizing philosophy of leveraging power by listening and forming relationships based on self-interest, said the future president liked to keep things civil.

“He didn’t gravitate toward confrontation, and would use it as a last resort,” Mr. Kellman said, “and it seems to me he’s still there.”

As he has implored Democrats not to let his health bill die, Mr. Obama has often used the kind of lofty rhetoric and appeals to conscience and history that were his hallmark on the campaign trail. (“This is why voters sent us here,” he often says.) Usually, he talks policy before politics, said Senator Evan Bayh, the Indiana Democrat who recently announced that he is retiring.

“He always starts off with a policy argument, making the intellectual case for his point of view,” Mr. Bayh said. “Secondarily to that, there might be a discussion of some of the political ramifications, but he always starts off with, ‘Look, this is why I think this is right for the country, and I respect your point of view, I know where you are coming from, but here’s why I think we need to do it this way. Can you help me?’ ”

But some Democrats say the road to passing a health care bill will not be lined with lofty appeals and gentle touch. Rounding up the necessary 217 votes in the House will be tough; tougher still will be persuading the Senate to pass a bill using the parliamentary maneuver known as reconciliation, which needs only a simple majority and averts a filibuster.

So whether he likes it or not, these Democrats say, Mr. Obama may have to engage personally in the kind of political horse-trading and arm-twisting that he has long left to hard-headed Congressional leaders, like Speaker Nancy Pelosi, or Rahm Emanuel, his chief of staff.

Mr. Axelrod, mindful of the criticism, sounded a cautionary note.

“Everyone likes the president to twist arms,” he said, “unless it’s their arm getting twisted.”

Monday, February 22, 2010

Mark Zandi: How to fix the U.S. Job Market

In November 2009, Mark Zandi of Moody's conducted some estimates of what were the best measures to kick-start the job market. Zandi is a Democrat, but he was an economic adviser to Sen. McCain's presidential campaign, so he's clearly not a raging partisan.

Zandi considered various measures, such as various forms of business tax cuts and spending increases. The chart is read this way: for every dollar the government spends on a measure, what's the estimated increase in Gross Domestic Product? If the figure is above $1, then it's a good tax cut. If it's below $1, the government is basically wasting money. These figures are estimates, so figures close to $1 may be no different from $1 in real life.

Job Creation Policies' Bang for the Buck
Estimated one-year dollar change in GDP for each dollar reduction in
federal tax revenue or increase in spending.

Tax Cuts

Nonrefundable lump-sum tax rebate $1.01
Refundable lump-sum tax rebate $1.22

Temporary Tax Cuts
Payroll tax holiday $1.24
Job tax credit $1.30

Across-the-board tax cut $1.02
Accelerated depreciation $0.25 [Editor: This cut and the next one are corporate tax cuts]
Loss carryback $0.22
Housing tax credit $0.90

Permanent Tax Cuts
Extending alternative minimum tax patch $0.51
Making Bush income tax cuts permanent $0.32
Making dividend and capital gains tax cuts permanent $0.37
Cut in corporate tax rate $0.32

Spending Increases
Extending unemployment insurance benefits $1.61
Temporary federal financing of work-share programs $1.69
Temporary increase in food stamps $1.74
General aid to state governments $1.41
Increased infrastructure spending $1.57

Source: Moody's

Some folks may complain that increases in unemployment insurance, food stamps and aid to state governments don't have anything to do with jobs. The bottom line is that these folks are wrong. People who get money from UI and food stamps will spend every dime. That money will stimulate the economy. Increased aid to state governments will cause them to not make cuts they would otherwise have, or will enable them to take on new projects - just because governments can be a bit bureaucratic does not mean that they aren't an integral part of the economy. They are, and they put money into the economy with the work that government workers do directly, and by hiring private contractors. Anyway, the three provisions discussed here will provide the most immediate stimulus effect, and they are clearly the best bang for the buck.

Increased infrastructure spending is also highly stimulative and is warranted; it may take a while to plan the projects. And, as Zandi says, a payroll tax holiday or payroll tax credit, which will give companies that increase their payrolls either a temporary break from payroll taxes or a tax credit, is warranted.

NYT: Despite signs of recover, long-term unemployment rises

A New York Times article points to growing structural problems that will leave many people, particularly older and less-skilled workers, behind even as the economy recovers. Many people are unlikely to be able to find work. The unemployment safety nets are highly limited, are designed for short-term unemployment, and don't even cover many people in the first place. As an intern and then a consultant, for example, I am not covered by unemployment insurance. Some excerpts:

Some labor experts say the basic functioning of the American economy has changed in ways that make jobs scarce — particularly for older, less-educated people like Ms. Eisen, who has only a high school diploma.

Large companies are increasingly owned by institutional investors who crave swift profits, a feat often achieved by cutting payroll. The declining influence of unions has made it easier for employers to shift work to part-time and temporary employees. Factory work and even white-collar jobs have moved in recent years to low-cost countries in Asia and Latin America. Automation has helped manufacturing cut 5.6 million jobs since 2000 — the sort of jobs that once provided lower-skilled workers with middle-class paychecks.

“American business is about maximizing shareholder value,” said Allen Sinai, chief global economist at the research firm Decision Economics. “You basically don’t want workers. You hire less, and you try to find capital equipment to replace them.”

During periods of American economic expansion in the 1950s, ’60s and ’70s, the number of private-sector jobs increased about 3.5 percent a year, according to an analysis of Labor Department data by Lakshman Achuthan, managing director of the Economic Cycle Research Institute, a research firm. During expansions in the 1980s and ’90s, jobs grew just 2.4 percent annually. And during the last decade, job growth fell to 0.9 percent annually.

“The pace of job growth has been getting weaker in each expansion,” Mr. Achuthan said. “There is no indication that this pattern is about to change.”

Before 1990, it took an average of 21 months for the economy to regain the jobs shed during a recession, according to an analysis of Labor Department data by the National Employment Law Project and the Economic Policy Institute, a labor-oriented research group in Washington.

After the recessions in 1990 and in 2001, 31 and 46 months passed before employment returned to its previous peaks. The economy was growing, but companies remained conservative in their hiring.

Some 34 million people were hired into new and existing private-sector jobs in 2000, at the tail end of an expansion, according to Labor Department data. A year later, in the midst of recession, hiring had fallen off to 31.6 million. And as late as 2003, with the economy again growing, hiring in the private sector continued to slip, to 29.8 million.

It was a jobless recovery: Business was picking up, but it simply did not translate into more work. This time, hiring may be especially subdued, labor economists say.


Some poverty experts say the broader social safety net is not up to cushioning the impact of the worst downturn since the Great Depression. Social services are less extensive than during the last period of double-digit unemployment, in the early 1980s.

On average, only two-thirds of unemployed people received state-provided unemployment checks last year, according to the Labor Department. The rest either exhausted their benefits, fell short of requirements or did not apply.

“You have very large sets of people who have no social protections,” said Randy Albelda, an economist at the University of Massachusetts in Boston. “They are landing in this netherworld.”


“We have a work-based safety net without any work,” said Timothy M. Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin, Madison. “People with more education and skills will probably figure something out once the economy picks up. It’s the ones with less education and skills: that’s the new poor.”


When the company moved to Mexico in the early 1990s, Ms. Eisen quickly found a job at a travel agency. When online booking killed that business, she got the job at the beauty salon equipment company. It paid $13.25 an hour, with an annual bonus — enough for presents under the Christmas tree.

But six years ago, her husband took a fall at work and then succumbed to various ailments — diabetes, liver disease, high blood pressure — leaving him confined to the couch. Not until 2008 did he secure his disability check.

And now they find themselves in this desert of joblessness, her paycheck replaced by a $702 unemployment check every other week. She received 14 weeks of benefits after she lost her job, and then a seven-week extension.

For most of October through December 2008, she received nothing, as she waited for another extension. The checks came again, then ran out in September 2009. They were restored by an extension right before Christmas.

Their daughter has back problems and is living on disability checks, making the church their ultimate safety net.

Sunday, February 21, 2010

Nationmaster: Taxation as % of GDP in OECD countries

As the President starts assembling a bipartisan commission to deal with the deficit, and the Republicans continue to live under the misapprehension that cutting taxes will be all it takes to balance the budget, I thought it was instructive to post some international statistics from Nationmaster. My elementary HTML skills mean my table is not as nice as theirs, but the point is clear. Most other OECD countries tax their citizens at higher rates than the U.S. Some countries tax at much higher rates. And the U.S. is the most militaristic country of all those below: we probably spend more than all the others combined on defense and we engaged in one clearly unjust war and a complete boondoggle in the last 10 years (as well as one war that may well be a just one).

Total taxation as % of GDP in OECD Countries

Country Amount
Sweden 54.6%
Denmark 48.8%
Finland 46.9%
Belgium 45.6%
France 45.3%
Austria 43.7%
Italy 42.0%
Netherlands 41.4%
Norway 40.3%
Germany 37.9%
United Kingdom 37.4%
Canada 35.8%
Switzerland 35.7%
New Zealand 35.1%
Australia 31.5%
Ireland 31.1%
United States 29.6%
Japan 27.1%

Saturday, February 20, 2010

Bruce Bartlett on Forbes: Early retirement, work sharing and tax credits won't boost employment.

Bruce Bartlett writes on Forbes about what he thinks should be in a jobs bill. He's a conservative former Treasury Secretary, but he's generally been a reasonable man. I don't agree with everything he says here but his thoughts are definitely worth considering.

Although economists are generally in agreement that the recession ended last summer, they also foresee a considerable period of high unemployment well into the future. This has led policymakers to look for new ways of creating jobs that go beyond the macroeconomic measures that were enacted a year ago. Unfortunately, some of these ideas aren't too good.

Rep. Dennis Kucinich, D-Ohio, has proposed lowering the age to qualify for early Social Security benefits to 60 from age 62 for the first 1 million people who apply. He assumes that all the people who would take advantage of this opportunity are currently employed. Thus, according to him, the proposal would automatically lead to the opening up of 1 million job vacancies.

This is not a new idea. As historian William Graebner has documented, the Social Security program itself was partly conceived in order to encourage older workers to leave the labor force so as to create employment opportunities for younger workers. That's why those receiving Social Security benefits were long prohibited from earning more than a token amount of wage income. However, there is no evidence that encouraging retirement or penalizing work by the elderly ever had more than a trivial effect on creating job vacancies. (See this study by the Social Security Administration and this study by the International Monetary Fund.)

Indeed, the inadequacy of early retirement benefits has actually increased the labor force participation rate among older workers, according to an Urban Institute report. Those retiring at age 62 this year will receive monthly Social Security benefits 25% lower than those retiring at age 66. To be actuarially fair, the benefits for those retiring at age 60, as Congressman Kucinich proposes, would have to be even lower, thus making it very unlikely that his plan would induce much in the way of additional retirement among employed older workers. The only ones that would be attracted to it are those that are unemployed, which necessarily means that no vacancies would be created.

Another bad idea making the rounds is work sharing. If the economy is not going to create enough jobs, some people argue, then maybe we need to divvy up the jobs we have more broadly. Reducing the standard workweek by 10% from 40 hours to 36 hours, so the thinking goes, would force employers to hire 10% more workers. Indeed, a British group is actually promoting the idea of a 21-hour workweek.

Economists often refer to this as the "lump of labor fallacy." It rests on the idea that there is a fixed amount of work to do that can simply be spread among a greater or lesser number of workers. The problem is that the amount of income being produced would still be the same. While some unemployed workers would gain jobs and income, current full-time workers would become underemployed and see a reduction in their incomes. It's hard to see how this benefits the economy as a whole.

Consequently, whenever work sharing has been mandated--several countries in Europe have done so--governments have insisted that weekly wages be unchanged. In other words, a worker would continue to receive pay for 40 hours of work even though he was only allowed to work 36 hours.

In such cases it is clear that that the government has simply forced hourly wage rates up by 10%, which is why Franklin Roosevelt opposed a bill that passed the Senate in April 1933 that would have reduced the standard workweek to 30 hours. He thought it made more sense to establish a national minimum wage instead, which became a key element of the National Industrial Recovery Act that was enacted in June 1933. (The current minimum wage dates from legislation enacted in 1938 after the Supreme Court struck down the NIRA.)

Unfortunately, as we know from logic and experience, when the government raises the cost of employment the result is fewer jobs. We even have recent evidence proving this fact. As University of Chicago economist Casey Mulligan notes, when the minimum wage was increased to $7.25 per hour from $6.55 in July 2009, there was an immediate falloff in the number of part-time jobs that were created. (In an earlier column I discussed the economics of the minimum wage in more detail.)

Obviously, raising the cost of labor is not going to create jobs, especially in an economy where there is still downward pressure on prices, which means that real wages are rising even if nominal wages aren't. This has led some policymakers to suggest a tax credit for employers for each new job created.

An employment tax credit for new jobs is also not a new idea. One was enacted during the Carter administration, revised by the Reagan administration and ultimately abolished by the George W. Bush administration. In practice it turned out to be very difficult to figure out what a new job was or prevent employers from gaming the system--firing a worker one day, rehiring him the next and claiming that a new job was created. Another problem was that many businesses, such as new startups, had no tax liability against which to apply the credit. Businesses also found the paperwork involved with claiming the credit to be more trouble than it was worth. Finally, a lot of tax credits ended up being claimed by businesses that just happened to be expanding employment for reasons unrelated to the credit. In effect, they were rewarded for something they would have done anyway.

Various studies by the Labor Department, the Government Accountability Office and academic economists found that the targeted jobs tax credit was not an effective job-creation measure. Economist Gary Burtless of the Brookings Institution believes that it is probably impossible to design a jobs tax credit that can overcome the obstacles inherent in the nature of such a program.

That hasn't stopped people from trying to figure out some way of using the tax code to spur hiring. The latest idea is to give employers a temporary credit against their share of the payroll tax. The Congressional Budget Office has examined this proposal and found that the cost in terms of lost revenue per job created would be very high because businesses could respond not by hiring new workers but by reducing prices for their output, increasing after-tax profits or simply rewarding existing workers.

The payroll tax credit also suffers from all the same problems that made the targeted jobs tax credit ineffective. Economist Timothy Bartik of the Upjohn Institute notes that the more efforts are made to target the credit only to net new jobs, the more complicated it becomes and therefore the less attractive to employers. Dartmouth economist Andrew Samwick points out that if the federal government was capable of administering a program this intricate then there would have been more of an impact from the stimulus measures already enacted.

Perhaps more importantly, under current economic conditions, any reduction in the cost of labor is unlikely to have much impact on employment because the fundamental economic problem is a lack of demand for business output. As Bill Rys of the National Federation of Independent Business recently put it, "At the end of the day, if you don't have work for the employee to do, there is really no reason to bring an employee in. It's a heavy cost to carry around if you're not generating any income."

In the end the best way of creating jobs is to grow the economy by increasing the demand for goods and services. When the real gross domestic product is rising steadily, employers will have to hire more workers to increase production. As economist Mark Zandi recently put it, "Historically, changes in employment and unemployment closely follow changes in GDP."

This doesn't mean we should necessarily reject targeted measures to increase employment, it just means that we are going to have to find better ways of doing so than the ones I have described.

Tax Policy Center: We can't just tax the rich to balance the budget

The Urban-Brookings Tax Policy Center reports that barring major changes to the tax structure or major spending cuts, it will not be feasible to balance the budget solely by raising taxes on Americans making more than $250,000.

If you wanted to limit the deficit to 3% of Gross Domestic Product (which is the sum of all that the nation produces) and if you wanted to raise only the top two tax brackets, you'd have to raise rates to72.4% and 76.8% respectively, from 33% and 35%. At this level, there would be considerable evasion of taxes, both through legal and questionable means. If you raised only the top three brackets, you would need to raise them to 52.6% (from 28%), 61.9% and 65.7%.

If you wanted to raise taxes on all Americans, you'd still need to raise the top rate to 52.1%. Each bracket would need to rise by 50% or so. All these are assuming the Administration's proposed tax policy, which includes letting all the Bush tax cuts expire. This would mean raising taxes on middle and working-class families.

First, this points to how critical health reform is. None of the Republican ideas aside from radically cutting government spending on Medicare and Medicaid do anything to bring costs down. The Democrats' proposals at least get us part of the way there.

Second, this points to the fact that we do need to consider other sources of revenue, such as a value-added tax, cap and trade revenues, or a carbon tax.

Wednesday, February 17, 2010

Consumer Affairs: Banks really do prefer foreclosure

Hat tip to MSN Money's Smart Spending blog.

At the start of the foreclosure crisis, personal-finance experts urged struggling homeowners to contact their lenders if they started to fall behind on their mortgages. The lenders want to do everything they can, homeowners were told, to avoid a foreclosure.

Now, the experts aren't so sure that's the case.

Consumers who have jumped through a frustrating series of hoops to achieve a mortgage modification -- a lower interest rate or more manageable payments -- are convinced that conventional wisdom is flawed.

Jason, of San Diego, said he's become frustrated trying to complete a loan modification.

"I have gone through the modification process but have been denied, although no clear explanation was provided," Jason told "I have been seeking assistance and guidance from quite a few bank representatives and have only received rude, misguided information."

In the last year has received hundreds of complaints from consumers who said they followed loan-modification instructions, faxing requested documents repeatedly, only to have their applications disappear into a black hole.

"I faxed papers repeated times and was told that I need to fax more or that they never received them so they can start a modification," Maria, of Sussex, N.J., told "I made payments and they never credited my account. Now they call in October 2009 and they tell me that they stopped the modification because I never faxed out the papers. Is this a joke?"
Bing: Why loan modifications don't work
Regardless of the loan servicer, the story seems to be the same. Consumers start down a road they think will lead to a modified mortgage, only to meet a wall of incompetence and indifference at the mortgage company.

"We sent all information requested by certified mail," Regina, of Whitefish Bay, Wis., told "As the others have described, we have had to make contact. They do not respond. The usual answer is 'Whoever told you that is wrong.' I actually have a tape of one of their agents stating, 'I can't be responsible for what someone else told you.' Should they not be required to respond in writing? Is this not a government-funded program?"

The Treasury Department did, in fact, begin a loan- modification program in March to encourage loan servicers to modify troubled loans to prevent foreclosures. But the process has proved slow, and for many, frustrating. Meanwhile, foreclosures continue unabated.

A new report by the National Consumer Law Center says it's no mystery why loan servicers seem to be dragging their feet in modifying troubled mortgages. The report suggests these companies actually stand to profit if the troubled property goes to foreclosure.

The report, "Why Servicers Foreclose, When They Should Modify, and Other Puzzles of Servicer Behavior," reveals that servicers, unlike investors or homeowners, generally don't risk losing money on foreclosures.

"One common-sense solution to the foreclosure crisis is to modify the loan terms in more instances," said Diane Thompson, an NCLC attorney and author of the report. "Foreclosures are a costly ordeal for the homeowner, the lender, and the community. Yet they continue to outstrip loan modifications because servicers have no incentive to help borrowers stay in their homes."

In almost every case, the loan servicer doesn't own the loan. It's simply a company -- usually a bank -- hired to collect the money from the homeowner and deliver the funds to the investors who own the mortgage. The investors lose money if the property goes to foreclosure, but the servicer doesn't.

Homeowners seeking to save their homes by modifying unaffordable loans typically deal with servicers. That is why the financial interests of servicers have the potential to hurt homeowners, the report says.

And too many of those financial incentives encourage servicers to ignore the interests of homeowners. For example, the report suggests that servicers often deny homeowners principal and interest rate reductions because as servicers they find it profitable to offer repayment plans or forbearance agreements that do little to reduce homeowners' debt burdens.

"Loan modifications inevitably cost the servicer something," the report says. "A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed."

The NCLC report also found that the lack of third-party oversight allows servicers to pursue foreclosure instead of effective loan modifications that would benefit homeowners as well as investors. While credit-rating agencies and bond insurers do monitor servicers, their oversight too often encourages servicers to foreclose.

The NCLC report includes a detailed examination of loans in foreclosure from 1995-2009 and how components of servicer compensation affected the likelihood and speed of foreclosure. It also looks at the rise of the servicer industry as a byproduct of securitization, and the oversight of servicers by credit-rating agencies and bond insurers.

"The people who could change the way servicers are doing business -- Congress, the administration, and the Securities and Exchange Commission -- and the market participants who set the terms of engagement -- credit- rating agencies and bond insurers -- have failed to provide servicers with the necessary incentives to reduce foreclosures and increase loan modifications," Thompson said.

The report suggests that rule changes remove the financial incentives for servicers to block modifications and mandate loan modifications before a foreclosure as a matter of law. Until it does, the report says, the foreclosure crisis will continue.

"I feel that I have been set up to lose my house," Alesea of Kinston, N.C., told "Where is the justice in this?"

Monday, February 15, 2010

Immigration reform: What if citizenship by birth were ended in the U.S.?

The 14th Amendment to the U.S. Constitution mandates that all people born on U.S. soil and subject to the jurisdiction of the U.S. are citizens. Legally, this is known as jus soli, the latter word from "soil". This contrasts with jus sanguinis, where a child acquires a country's citizenship by right of one or more parents being a citizen of that country. To my knowledge, most countries observe a combination of jus soli and jus sanguinis. The U.S. does both. Some countries will grant citizenship to children of aliens born on their soil only if one parent is a citizen or permanent resident; France, Singapore and Germany are some examples.

A bill by Representative Nathan Deal, a Republican from Georgia, reported by the Atlanta Journal-Constitution, would seek to modify jus soli in the U.S. Opponents of "birthright citizenship" says it encourages illegal immigration, because undocumented immigrants can get U.S. citizenship for their children born in the U.S. The anti-immigrant crowd also says this encourages chain migration, whereby a citizen child can sponsor their parents and eventually their parents' relatives. In practice, U.S. citizen children have to wait till age 21 to sponsor non-citizen parents. There are significant waiting lists for non-nuclear relatives.

At present, it would absolutely be unjust to modify jus soli even if it were constitutional. It would cut a lot of people - children, mind you - off from public benefits. That said, changing jus soli can be justified in certain cases. People migrate far more than when the Constitution was written. Countries do have the right to exercise reasonable control who they admit so that their public services are not overburdened. Mr. Deal's law is unlikely to pass Congress or to survive a legal challenge, and this is as it should be. However, if jus soli were modified, there are other legal changes that the U.S. would need to make:

1. All children have the right to an education under Article 26 of the Universal Declaration of Human Rights. All children in the U.S., regardless of the immigration status of their parents, should be educated and treated as equals in U.S. schools; in fact, in Plyler v. Doe, the courts have rejected legal challenges to the right of undocumented children to education.

2. Children, regardless of immigration status, ought to be eligible for public supports such as food stamps, the Children's Health Insurance Program and others. Present immigration law bars non-citizens from receiving cash assistance from federal programs and imposes a five-year waiting period for new immigrants before they can enroll in Medicaid (although states have the option to cover them anyway). However, food stamps aren't considered cash assistance. Additionally, children, because they are a vulnerable population, should be eligible for Medicaid/CHIP regardless of immigration status.

3. The U.S. would need to make exception for children who would otherwise be stateless. Oddly, the U.S. has not acceeded to the 1961 U.N. Convention on the Reduction of Statelessness. Were the U.S. to modify jus soli, it should also sign the Convention. Stateless people are extremely vulnerable because they have difficulty accessing all social services and benefits in their home countries and their countries of residence.

4. Any changes to jus soli would need to come with comprehensive immigration reform.

These changes to U.S. public policy should actually be considered no matter what changes are made to jus soli. They are consistent with international treaties that the U.S. has signed on to or should sign on to.

Sunday, February 14, 2010

WSJ: Better Education Shields Women from Worst of Job Cuts

MP McQueen writes for the Wall Street Journal about how women's increasing education levels are shielding them from the worst of the job losses. Women's increasing education also interacts with the changing economy, in that manual jobs that men have gravitated to, like manufacturing and construction, are in decline. An excerpt:

Steady increases among women with college degrees over the past two decades apparently paid off during the recession, with government statistics showing they fared better than men over the past year, and for the first time surpassed the number of men holding payroll jobs.

Women were earning about 166 associates degrees and 135 bachelor's degrees for every 100 earned by men in 2007, according to the U.S. Department of Education. Perhaps as a result, more women were employed in teaching, government and health care, sectors that held up better in the recession. The construction and manufacturing sectors, which often require less schooling, have shed millions of jobs in the last few years.

Revised data released last week by the Bureau of Labor Statistics showed women held about 720,000 more nonfarm payroll jobs than men in January. They also exceeded the number of men on the payroll during four months last year.

"This is unprecedented," said Tim Consedine, regional economist,at the U.S. Bureau of Labor Statistics in Boston.

The turnaround underlines an astonishing change in the educational and employment status of women in the U.S. in the past three decades, with broad social and economic implications for family, gender relations and even employers' human-resources policies. As more jobs are being created in fields that require higher education, a smaller share of men are getting degrees, giving women an employment advantage. Some men are returning to college for degrees in formerly female-dominated fields such as teaching and nursing.

"There are very high returns to education in the marketplace right now," said Casey B. Mulligan, a professor of economics at the University of Chicago, who has studied gender differences in the labor market. "It's a fact that women have leveraged."

Dawn Clark, of Davison, Mich., illustrates the change. She completed her nursing degree after marrying and bearing three children to supplement the family's income with a part-time job.

But when her husband Kevin lost his job as a lumber salesman 18 months ago, Ms. Clark, 42 years old, took over the role of main breadwinner. She now earns about $70,000 a year as a registered nurse. Kevin, 48, who used to earn up to $72,000 annually, now takes in about $18,000 a year working two jobs. He attended college for only a year.

"If I didn't have this degree I wouldn't be able to help, I don't know where we would be today," Ms. Clark said.

Women's pay also is rising faster than men's, albeit from a lower base. Median men's weekly wages rose 3.4% in the two years ended in the fourth quarter of 2009, to $825. During that same period, women's wages rose 5.3%, to $670.

We do still see huge disparities in upper-level management and fields requiring greater mathematical skills to the disadvantage of women. However, we also need to do something about men at the lower end of the skill ladder to get them the education and training they need.

WSJ - Toyota: A Crisis Made in Japan

Jeff Kingston of the Wall Street Journal attributes Toyota's latest spate of errors to a cultural failing. An excerpt:

Japanese firms often seek to cover up or fudge the facts and the people communicating with the media and public often do not have the information they need to do their job. The absence of a structure to quickly get accurate information to top management hampers an accurate and adequate response. That leaves management unprepared to deal with media questioning and conveys an image of stonewalling and indifference.

There is a cultural element to this penchant for mismanaging crisis. The shame and embarrassment of owning up to product defects in a nation obsessed with craftsmanship and quality raises the bar on disclosure and assuming responsibility. And a high-status company like Toyota has much to lose since its corporate face is at stake. The shame of producing defective cars is supposed to be other firms' problems, not Toyota's, and the ongoing PR disaster reveals just how unprepared the company is for crisis management and how embarrassed it is. In addition, employees' identities are closely tied to their company's image, and loyalty to the firm overrides concerns about consumers.

There is also a culture of deference inside corporations that makes it hard for those lower in the hierarchy to question their superiors or inform them about problems. The focus on consensus and group is an asset in building teamwork, but also can make it hard to challenge what has been decided or designed. Such cultural inclinations are not unknown elsewhere around the world, but they are exceptionally powerful within Japanese corporate culture and constitute significant impediments to averting and responding to a crisis.

This crisis offers an opportunity to reform Toyota's corporate culture and improve quality assurance. This can be done by becoming more focused on the customer, using two-way flow of information and feedback; improving corporate governance by appointing independent outside directors; and making risk management more than an afterthought. It is not too late to turn the situation around, but this means shedding the constraints of a fusty corporate culture and wowing customers with a recall and above-and-beyond after-sales service and care. Yet early signs are that Toyota is no longer the nimble company that took the world by storm over the past half-century.

When Mr. Toyoda took the helm in mid-2009 he was unable to express a reassuring sense of how he would deal with his company's problems of overcapacity as well as the need to diversify away from reliance on the U.S. market and build its presence in China, India and Brazil. A string of successes, most notably the Prius, may have made the juggernaut a bit complacent, losing the edge that helped it surge since the 1970s by being ahead of the curve on fuel efficiency and top of the class on reliability. Regaining that edge and repositioning the company to tap into growing markets promises to be a difficult transition.

The Japan Inc. model of cooperative and collusive relations between the business and the government delivered the economic miracle, but has run out of steam. Japan's Lost Decade of the 1990s is entering its third decade, discrediting the powers that be.

I am hesitant to ascribe all failings solely to cultural issues, but Kingston is on the money in this case. While not all Western organizations are as open as they should be, Asian cultures should certainly learn to be more open.

Angie Chuang: Haiti's Orphans and the Transracial Adoption Dilemma

Angie Chuang, an assistant professor at American University's School of Communication, writes an article in The Root about race and international adoption:

Call them kidnappers. Call them good Samaritans. Call them unwitting victims to a political drama staged by the beleaguered Haitian government.

Call the 10 American missionaries under arrest for taking 33 children out of earthquake-ravaged Haiti what you will, two facts—rarely mentioned in news media accounts—are indisputable:

All of the detained members of the Idaho-based Baptist group are white.

All of the 33 children are black.

Black like Madonna and Brangelina’s adopted African children. Black like 1 in 3 American children in foster care and awaiting adoption. Black like the race least “preferred” by prospective adoptive mothers, according to government data.

Bring up race and adoption, and watch people squirm. The deep racial politics of adoption are mired in centuries of colonialism, as well as white paternalism over domestic minority groups and developing countries. The result: They have left scars as deep as forced adoption of American Indian children into white families in the mid-20th century—and fresh ones from the campaign to convert Muslim Indonesian orphans to Christianity after the 2004 tsunami.

The current-day realities of transracial adoption remain tangled in the U.S. government’s own conflicted policies about race-matching versus “colorblind” adoption, as well as constantly shifting regulations in countries such as China, the former Soviet Union and Guatemala. There are uncomfortable contradictions: Whites are chastised for their reluctance to adopt black children, but then those who do adopt black children are criticized for not being able to prepare black adoptees to face discrimination—or embrace their identities.

And the most unsettling contradiction of all: Isn’t adoption an act of love? A selfless act? Can we honestly tell the parent of an adopted child who happens to be of a different race that their bond is somehow tainted by generations of racism?

But societal attitudes about race and adoption are not borne of a single family, incident or policy. And our unwillingness to address them amid the clamor over “Haiti orphans” only stymies the real discussions Americans—whites and people of color, adoptive parents and adoptees—need to have.

To avoid them only deepens the hurt. No one wins, not the adoptive parents bruised by stares and judgments, nor of the children who must struggle with the unsolvable puzzle of who they are. Ultimately, the losers are all people of color, forced to see a measurement of their own value reflected in society’s cavalier handling of adoption and race.

Popular culture treats transracial adoption like trends in ownership of Yorkies versus Golden Retrievers. On the Us Weekly site, a commenter wondered if Angelina Jolie would soon be adopting from Haiti so that she can “find … one to match Zahara.” Meanwhile, there’s the White Swan Barbie, which conveniently comes equipped with a special accessory: an adopted Chinese daughter.

Then there’s Gia, a contender on the The Bachelor whose job description is “Swimsuit Model.” Snuggled in front of a campfire with bachelor Jake, Gia tells him that she wants to have a couple of kids, then adopt a Chinese girl—“and a potbellied pig.” Giggle.

‘Degrees of separation’

I asked Terrance Heath, a black, man who blogs with his partner about raising two adopted African-American sons for The Republic of T, what he made of the rush to adopt Haitian “orphans.”

It “reflects a desire to avoid certain aspects of our history in this country, and may be based on the assumption that Haitian children are somewhat removed from that history,” he said.

”It does give them a couple of degrees of separation from the history of racism in this country,” as does adopting from Asia or Latin America.

There’s an unspoken hierarchy of adoption, said Rev. Joseph Santos-Lyons, a transracial adoptee from Portland, Ore., who has worked within the Unitarian Universalist faith to educate young people of color raised by white adoptive parents.

On the top tier are white children, either adopted domestically or from the former Soviet Union and Eastern Bloc countries. When restrictions on those regions made it more difficult to adopt, China and other parts of Asia became the next most desirable. Latin America is next, followed by Africa (and Haiti, not accounting for the disaster effect). Mixed-race or biracial children can vary on this spectrum, but are considered desirable if they can "pass" for the biological offspring of their parents. Black American children remain in the bottom tier. “These perceptions are actually realities in people’s attitudes,” said Santos-Lyons, 36, who is Chinese and Czech, and identifies as hapa. He understands this firsthand: His adoptive parents, who are white and adopted him domestically, told him that they had been offered a black child before him.

“They declined, and waited until they got a child of my mixed ethnic background,” he said. “That’s a pretty heavy realization.”

When transracial adoptees grow up and begin to understand the history and politics of adoption—particularly the fact that many international adoptions have been the products of black-market child trafficking or coercion of birth families, Santos-Lyons said, “It leads them to become hurt and upset.”

Witness the group Transracial Abductees (subtitle: “angry pissed ungrateful little transracially abducted mother****ers from hell”), whose Web site asserts, “‘Adoption’ conceals the unequal power between abductors and abductees, and in the abduction industry in general.”

Voices less extreme have also sought to discourage transracial adoption, on the grounds that children of color raised by white parents lose a part of their identity, and aren’t equipped to live in a society that will judge them by the color of their skin. Historically, the National Association of Black Social Workers has taken a vehement stance against white parents adopting black children. Heath says he does support cross-cultural adoption, if the adoptive parents take the responsibility to ensure the child is not culturally and ethnically isolated.

“I try to teach my boys that they do not have to reflect all that will be projected on them as young African-American men. That’s something I learned from my parents,” he said. “It’s something that adoptive parents of Haitian children are going to have to learn.”

Friday, February 12, 2010

What is going on with Anthem Blue Cross in California?

Anthem Blue Cross/Blue Shield (a for-profit BCBS entity owned by the national insurer, Wellpoint) recently announced rate hikes in the individual insurance market in California. Some of the hikes were as high as 39% - and people are outraged. The Obama Administration pounced on Anthem, with Katherine Sebelius, the Secretary of Health and Human Services, demanding that they explain their rate hikes.

As Johathan Cohn explains in his blog on The New Republic website what happens when insurers sell in the individual insurance market:

When insurance companies sell coverage in the individual market--that is, when they offer polices to people one-on-one, rather than through employers--they don’t typically put everybody’s premiums into one big pot. Instead, they usually break up their business into different “blocks.” A block could be everybody living in a particular area, everybody fitting a certain demographic profile, or everybody buying a particular type of policy, just to use a few examples. And after enough people are in a block, the insurer will often “close” it, meaning they don’t add new beneficiaries to that particular group.

Insurers will set the premiums in each block based on their projection of what kinds of medical bills people in the block are going to incur. And so, for example, a block that has a a lot of young, healthy men will probably have really cheap premiums--since, on the whole, young, healthy men tend not to have very high medical expenses.

(Young, healthy women are another story. They have the actuarially unfortunate habit of getting pregnant and having babies.)

Over time, the blocks evolve. And, inevitably, some of those young, healthy men will develop medical problems. They’ll get injuries or develop life-threatening illnesses--the type that require extended hospitalizations, long stints in rehabilitation, and all sorts of prescriptions. Rates in the group will start to go up.

At that point, people in the block will seek better deals. And the healthy ones will find such deals quickly. But the ones with the medical problems won't have such an easy time. If they shop around, they're likely to find only policies that provide way too little coverage or cost way too much. Whether they stick with their existing coverage or decide to switch, they're going to end up paying a lot more for their medical care.

In other words, it is likely that the blocks of business receiving the rate hikes have deteriorated significantly, in that many of their healthier members have left due to affordability concerns. Anthem explained that the rate hikes were due to a combination of this process, known as adverse selection, and general medical cost inflation. Indeed, Bob Laszewski of the Health Care Policy and Marketplace Review finds Anthem's explanation not implausible:

Falling back on my industry experience it is probable:

The “39%” headline is anecdotally the biggest increase the press has found—the average is probably less albeit in the high 20% range.

This is likely driven by a combination of increasing medical cost trend, a bad economy, and anti-selection as healthier people disproportionately drop their coverage leaving a sicker group in the pool.

The rate increase is probably “defensible,” at least actuarially, based upon the actual experience in that block.

Even if Anthem were non-profit, it would likely have had to make significant hikes to its rates as well. Of course, we don't know their profit margin on those blocks of business. We can say that the hikes averaging 20% can't be due to health care inflation, and the bulk is probably due to adverse selection.

This does underscore the need for national reform. While California could reform the rating and issue rules on its own, it does not have the budgetary power to subsidize individual market purchasers enough to get them to buy insurance. The proposed reforms will make premium increases in the individual marketplace far more stable and predictable. The reforms would give people considerable subsidies. The reforms also give the insurance exchanges the explicit authority to disallow unreasonable charges - plus the ability to assess whether the charges are reasonable. Congress must act now.

Thursday, February 11, 2010

Osama bin Laden's son warns about al Queda

In an exclusive ABC interview, Omar bin Laden, son of Osama bin Laden, warns that many of Osama's followers may well be worse than Osama. However, Omar also offers hope that many people who have fallen prey to extremist teachings can be rehabilitated if their home countries commit to doing so - instead of imprisoning and torturing them.

Osama bin Laden's son has a chilling warning for those who are hunting his father with drones, secret agents and missile strikes.

From Omar bin Laden's up-close look at the next generation of mujahideen and al Qaeda training camps he says the worst may lie ahead, that if his father is killed America may face a broader and more violent enemy, with nothing to keep them in check.

"From what I knew of my father and the people around him I believe he is the most kind among them, because some are much, much worse," Omar bin Laden, who was raised in the midst of his father's fighters, told ABC News in an exclusive interview. "Their mentality wants to make more violence, to create more problems."

Omar has turned his back on his father's philosophy, a remarkable step for a man in an Arab culture where it is a sin to disobey his father and taboo to openly criticize him. It was doubly significant for Omar bin Laden because his father had picked him to succeed him as the leader of jihad.

The son spoke out again recently after hearing his father in an audio tape praise the attempt by the so-called "underwear bomber" to blow up a jetliner over Detroit on Christmas Day.

"Attacking peaceful people is not being fair, it is unacceptable. If you have a problem with armies or governments you should fight those people. This is what I find unacceptable in my father's way," Omar told ABC News.

"My father should find some letter to send to all of these people, at least to tell them they shouldn't attack the civilians," he said. Omar is a clearly conflicted peacenik, bearing some signs of a loyal son and trying to explain his father's hatred. When asked whether there is anything his father likes about the United States, Omar says "their weapons," and nothing else.

The son of Osama, however, had praise for the U.S. saying, "They don't care what is your race, what is your skin, where you come from, this is very good."

And despite the $25 million bounty on his father's head and the ever-searching drones, Omar is confident that his father won't be caught and that no Afghan will turn him in.

"It's been 30 years now since he started fighting there. Who could catch him? No one.... This is the country that whoever gets in is stuck, be it the armies or the mujahideen," he said. Omar says even he does not know where his father is.

Osama Bin Laden's Sons Are 'Peaceful'
Although polls like the Pew Attitudes survey show steadily declining support for bin Laden in the Arab and Muslim world, Omar says he still hears vocal, if subtle endorsements.

"Nobody dares to say, 'I follow your father' in public. But I find it very often and everywhere, people say 'We like your father. Your father is a hero.'"

What's not clear is whether Osama bin Laden's children follow him. Despite reports that some of Omar's brothers fought and died in Afghanistan, Omar says the sons of Osama are "peaceful," with no interest in their father's war.

For years the whereabouts of his family were unknown, until headlines late last year suggested the family, minus Osama, had moved from Afghanistan to neighboring Iran. As Omar tells it, up to 40 members of the bin Laden family, wives and children, used fake identity documents to cross the border along with hundreds of thousands of people fleeing the U.S. invasion. They now live in a comfortable Tehran compound, but under house arrest.

"The Iranian government has showed very good caring to my brothers and sisters. The only mistake is that until now they haven't been released," said Omar, describing an upper crust lifestyle: swimming pool, tennis court, shopping trips, and horseback riding along the coast. The children have had no access to formal education, and every foot they set outside the home must be chaperoned by Iranian security forces.

In November, Omar's 17-year-old sister Imam escaped from Iranian custody and fled to the Saudi Embassy, where he says she is still living. Omar and Imam have spoken by phone, but Iran has so far refused to let her leave the country, and hasn't responded to requests from Omar and his mother to see her and verify her identity. Her lack of official identification documents is one reason Iran has said it won't give her an exit visa. One younger brother, Bakr bin Laden, was allowed to leave in December.

"[Iranian] President Ahmadinejad and his Minister of Foreign Affairs know they should do the right thing... they could release all of them if they wanted," said Omar. Most are being held against their will, though Omar's wife, Zaina Al Sabah, says seven or eight of them have said they want to stay in Iran.

Osama bin Laden raised his family of five wives (plus one marriage that was annulled) and more than a dozen children in a way meant to make them tough and ready for the rigors of war. He shunned air conditioning and refrigerators in the desert heat, banned toys and the kind of laughter that showed too many teeth, refused to wince when his men used Omar's puppies as the victims in chemical weapons tests. He would cane his children for the slightest misbehavior, at times hitting them so hard the stick would break.

Osama Bin Laden Urged His Sons to Be Suicide Bombers
"He didn't treat us differently than any of his followers. He just expected us to act like everyone else, because he was the leader," said Omar. He and his brothers were given weapons training. In a breaking point between them, Osama encouraged them to sign up for suicide missions, volunteering to blow themselves up.

"We were shocked. Why would our father say something like this to us? After he went away we just talked about it and said this was never going to happen, this was not our way." Omar found the rare and substantial nerve it took to talk back.

"I objected, and said why did you do this? What is the point? He didn't respond. We were not more important than his big goal...and nothing would stop him from this."

Today, Omar shrugs off the notion that his father had a cruel streak. He sees the spartan treatment as part of Osama's worldview. In his book "Growing Up Bin Laden," Omar notes the change in his father when he lands back in Afghanistan amid the violence of war and begins a rugged trip to a complex of barren caves in the Tora Bora mountains.

"I looked at my father. He did not seem to mind the trying conditions, but seemed exhilarated by them," Omar wrote. He added with a grudging admiration, "No matter what, my father was a tough man."

In Omar's book, his father is infuriated with the presence of American troops in Saudi Arabia, arriving to protect against an attack by Saddam Hussein in the first Gulf War. (Omar says his father disliked the secular Saddam, and that there was "no contact, no connection" between the men.)

In August 1996 Bin Laden declared war on America from his Afghan cave, citing the fact that U.S. forces were still in the Persian Gulf.

His father's pitch to the incoming mujahideen was different, focused on Arab discontent over the Israeli-Palestinian conflict, an issue with broader appeal. They came in droves, a new generation of men seeking jihad, or holy war, against the infidels of the West.

Omar describes how during meetings of mujahideen in Kandahar, leaders would play videos of perceived Israeli atrocities, the demolition of homes and the killing of civilians. Men would leave the meeting raging to fight. Between Israel and America, Osama saw America as an easier target.

"He thinks America is weaker than Israel. America is easier to get attacked, with its huge cities," Omar said. "He sees America is the main power, but in fact is weak in certain ways."

Omar believes most Al Qaeda fighters can be turned, and that efforts like terrorist rehabilitation programs in Saudi Arabia do work. The problem, as he sees it, is that their home countries are reluctant to take them back.

"The jihadis, as I know them, want to return to their country and they're afraid because they know they are going to be killed or poisoned or imprisoned, so they stay with my father," he said.

When Omar broke with his father and left Afghanistan before the Sept. 11 attacks, he sought to reclaim a life he never had. His family is trying to get access their inherited Bin Laden wealth, but Omar says the money is "stuck," held by governments in Sudan and Saudi Arabia.

Omar says his dream in life is to reunite his family and succeed as a businessman. Being the son of Osama has made both a challenge, and left him expressing a deep discomfort. "I am a peaceful man, but I don't have peace," he said.

Citibank pushes alternative to foreclosures

Morningstar has an article from Dow Jones about Citi pushing an alternative to foreclosures. The bank is making it much easier for homeowners who are in default to seek a deed in lieu of foreclosure arrangement.

Mortgage lenders are trying to arrange smoother departures for distressed homeowners who can't be saved by loan modifications--and discourage them from trashing the homes on their way out.
CitiMortgage, a unit of Citigroup Inc. (C), announced Wednesday a pilot project that will let some delinquent borrowers remain in their homes without making mortgage payments for six months if they voluntarily transfer ownership to the bank.

Over the past two years, millions of foreclosures have been delayed by state and federal programs requiring lenders to try to keep borrowers in their homes by easing their monthly payments. But the moment of truth is approaching for hundreds of thousands of households that sought help under the Obama administration's Home Affordable Modification Program, or HAMP, launched a year ago, as well as borrowers who have sought help through other programs.

"We are concerned that if there is a foreclosure glut at some point in the cycle it would have to have a negative impact on house prices," and Citi's pilot program should help prevent a build-up in foreclosed homes, said Sanjiv Das, the chief executive of CitiMortgage in an interview.

As of Dec. 31, about 900,000 borrowers had been given trial modifications under HAMP. Many have been unable to document that they have enough income to qualify for that program, however. Some soon will run out of options for keeping their homes.

The CitiMortgage pilot program provides incentives for more borrowers to use a procedure known as a "deed in lieu of foreclosure," in which the borrower voluntarily transfers ownership of the home to the lender, which then cancels the mortgage debt. Aside from letting such people stay in the homes for six months, CitiMortgage says it will give them at least $1,000 to cover relocation costs, an incentive sometimes dubbed "cash for keys."

Mr. Das said, "Something formally needs to be done in addition to the modifications. We are in a different stage of the housing cycle. Restructuring mortgage payments was part one of the cycle, making sure that foreclosure glut doesn't hit the industry is part two of the cycle. Citi is trying to stay ahead of it."

The pilot program is available for certain people whose mortgages are owned by CitiMortgage in Texas, Florida, Illinois, Michigan, New Jersey and Ohio. The bank should benefit by avoiding legal costs and reducing the time homes are left vacant and exposed to vandalism. Participants will be required to "maintain the property in its current condition," the bank said. It plans to expand the program if the pilot is successful.

Mr. Das said the bank had talked with the Treasury Department "about a coordinated, collective action" for customers that don't qualify for HAMP. "We believe if all banks take action collectively similar to this [Citi program], the impact on neighborhoods and on the late stage delinquencies that are building up would be a very good thing."

The program also reflects a realization that some people have the wrong house, rather than the wrong mortgage, and want to get out, Mr. Das said.

Another alternative to foreclosure is a short sale, in which lenders agree to allow a distressed borrower to sell the home for less than the loan balance due. Though the lender takes a loss, it can be much smaller than the hit that would arise from foreclosing and then maintaining the house while waiting for it to be sold.

But "often times in a short sale [the homeowner gets] a ridiculous offer" from a potential buyer that Citi wouldn't accept, Mr. Das said. In those cases, foreclosure or deed in lieu are the only options.

The Greater Las Vegas Association of Realtors says about 21% of home resales in January were short sales, up from 19% a month earlier. Potential buyers of homes in short-sale situations have long complained that banks often take months to respond to offers. But banks, prodded by the U.S. Treasury, have been trying to streamline the short-sale process. CitiMortgage last year set up a dedicated team charged with responding faster. J.P. Morgan Chase & Co. (JPM) also has beefed up its short-sale team.

Bank of America Corp. (BAC) said it has a pilot program that streamlines short sales. The bank said it would be able to approve sales within two weeks of receiving offers under that program. For homeowners who don't find a buyer within 120 days, Bank of America will offer a deed in lieu. Bank of America said borrowers will have cash incentives for completing this program.

In addition, the government-backed mortgage investors Fannie Mae (FNM) and Freddie Mac (FRE) both have programs that allow people who give up ownership of their homes to remain in them as renters.

One big problem is that many borrowers no longer have equity in their homes and thus may be tempted to abandon them. At the end of 2009, 21% of households with mortgages on single-family homes owed more than the current value of their homes, a predicament known as being under water, according to a new estimate from, a real estate data provider.

Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP, estimates 7.1 million of the 7.9 million households behind on their mortgage payments will lose their homes to foreclosure if nothing is done to improve current loan-modification programs. She believes banks should put much more emphasis on loan modifications that reduce the principal for people who are deeply under water.

-By James R. Hagerty, The Wall Street Journal; 412-261-1817; bob.hagerty@; and Matthias Rieker, Dow Jones Newswires; 212-416-2471; Sex Trafficking is High Around U.S. Military BAses Abroad has a good article that has some bearing on the Okinawa base quarrel.

Serving in the United States military is about honor, dignity, and strength. So it makes sense that the U.S. military would make visiting brothels and having sex with women and kids forced into a prostitution a big no-no for American soldiers, right? On paper, establishments that sell sex are off-limits for men (and women) in uniform. But in practice, sex trafficking flourishes near U.S. military bases. Should U.S. soldiers be abusing people in another country while protecting people in this one?
Of all the countries where an American military presence attracts prostitution, both voluntary and forced, South Korea may feel the effects most acutely. U.S. troops have been stationed in South Korea since 1945, and the brothels around the U.S. military bases have been there just as long. In 2004, the Pentagon drafted a policy to reduce the sex trafficking growing wherever American soldiers, sailors, and airmen were stationed, with specific attention to South Korea. Under that policy, military personnel caught visiting a brothel or "massage parlour" could be subject to court martial. However, there is very little information available about how often that sanction is enforced.

There is evidence, however, that the policy has not worked in reducing demand for prostitution, evidenced by the continuing high levels of prostitution and human trafficking near U.S. military bases. The U.S. military has finally begun to make some clubs and bars known to traffic women or sell children off-limits to service members, but one report indicates that only 4 out of 25 such places in the area have been listed as off-limits. The South Korean government, too, has been cracking down on sex trafficking in the past few years. However, the areas surrounding the U.S. military base have been exempted from the crackdown by the Korean government. So brothels around U.S. military bases are falling through the cracks of both U.S. government and Korean government policy.

If government policy is in place and sex trafficking is still going on, then what can be done to prevent it? The Pentagon took a good first step in putting a policy in place to prevent American military uniforms from showing up at brothels where women and children are forced into prostitution. However, they need to do more. Specifically, they need to enforce that policy, including against officers, whose indiscretions are sometimes ignored. They also need to work to change the culture in the military that views women as sexual objects. Addressing the latter will not only make a difference in the amount of sex trafficking around bases, but also the sexual harassment, rape, and assault of women serving in the military.

Men Can Stop Rape has a great campaign called "Our Strength is Not for Hurting," which focuses on equating masculinity and strength with respect for women. They have a similar campaign aimed specifically at military personnel. This would be a great starting point for the U.S. military to truly tackle the demand for sex trafficking which exists around their bases.

Matthews Investments: In China's Shoes

Matthews Investments is an investing firm that specializes in East and Southeast Asia. I'm not endorsing their funds. However, their chairman, Mark Headley, wrote a very interesting article on China. I believe his insights into China's national psychology are more or less on the money and am posting them here:

In the evolution of global trade and finance, China’s relative increase in almost every level of economic statistic over the last 30 years is one of the defining events of our times. Yet, in many ways, China is still a poor country with a per capita annual income of roughly US$3,000 versus about US$40,000 for the U.S. When pressured to address vital issues such as terms of trade, human rights and the environment, China constantly refers to its own internal challenges, external grievances and long road to development.

Many developed countries are increasingly frustrated with China’s unwillingness to “play by the rules.” China seems to want the full benefits of access and membership to the global system while maintaining unfair advantages. The currency issue is the most obvious source of friction for many developed and developing countries alike struggling to maintain jobs. China has frustrated the world a great deal in the past 30 years and generally has paid little or no price for its obstinacy. Access to China’s potentially huge domestic markets is one of the obvious reasons that other countries complain but seem to do little. No one wants to be China’s “least favored” trading partner.

But tensions are rising and the need for major adjustments is slowly becoming inevitable. So why does China behave the way it does and how do we, as citizens of the world’s most powerful nation, work with China?
Some months ago I made a crude attempt to describe China’s psychology to a large group of professional U.S. investors. I had precisely two minutes, so on a whim I decided to lay out an alternative history of the U.S. with the hope of giving the audience some understanding of China’s domestic identity. So, forgive the vast revisionism and crude reductionism, and please consider what our national attitudes and debates might resemble if the U.S. had gone through something like the Chinese experience.

A Revisionist’s History
Imagine if the U.S. had lost the War of 1812 against the British. Instead of a messy end to a sideline for the then mighty British Empire, the U.K. established total domination in key American cities. The War ends with Manhattan transferred to the British in perpetuity. Some 50 years later, they demand and receive Long Island on a 99-year lease. Backed by British power, other European nations demand their allotted piece of our coastal cities and economy. Imagine if this outrage to a nation’s sovereignty ended only 13 years ago with a formal handover ceremony—the Union Jack finally replaced by the Stars and Stripes in Times Square.

China and Britain went to war in 1839, largely because China objected to the vast opium imports devastating its domestic population. China’s forces were utterly defeated and Hong Kong was later demanded as a national territory of Britain. In a series of treaties, China was stripped of much of the ability to manage its own terms of trade. This set the tone for all future colonial depredations along China’s coast with European nations, and later Japan, demanding the right to virtually run their own private states within Chinese territory for much of the next 100 years. The demise of China’s 2,000-year-old imperial system can be significantly attributed to this ruthless attack on its sovereignty. Certainly, any hope of a smooth movement to democracy was greatly diminished. India did have the advantage (if it can be called that) of total British domination in forming its democracy. China, on the other hand, fell back after years of devastation on an imperial model dressed in Marxist robes.
Imagine if the U.S. Civil War, so etched in our national psyche, had not lasted four years and cost less than 1 million lives, but rather lasted over 15 years and resulted in losses 20 times what we actually suffered. Imagine if Washington, D.C., not Richmond, Virginia was the capital of the Confederacy for almost two decades.

China’s little known Taiping Rebellion lasted from 1850 to 1864. It was launched by a Cantonese farmer who interpreted the Christian teachings he was exposed to by the new Western presence to mean that he was the younger brother of Jesus. Vast armies fought battle after battle, and at least 20 million people died. The Taiping were finally slaughtered after ruling much of central China from the southern city of Nanjing. The Qing Dynasty was left even further weakened in its ongoing battle with colonial powers. Anyone who wonders why Chinese authorities are so paranoid about Christian activity or other spiritual organizations, like the Falun Gong, should study this history.

Imagine if the Japanese Imperial Navy had successfully captured Hawaii following the attack on Pearl Harbor in December 1941. This setback allowed Axis forces to capture much of the East (or West) Coast (take your pick) and hold that territory through eight years of brutal warfare. Military and civilian causalities in the tens of millions resulted. Many of America’s major coastal cities are left devastated. We are saved by the U.S.S.R’s defeat of Germany and Japan.

China, desperately weakened by its ongoing civil war between the Nationalists and Communist forces, faced direct Japanese hostilities in mid-1937. A bitterly divided country fought the Japanese in battle after battle until Japan’s final collapse in 1945. China fought approximately two-fifths of all Japanese forces in World War II, perhaps keeping Japan from successfully invading Australia and holding Southeast Asia against the Allied counter-attack.

Imagine if the radical left successfully captured power during the turmoil of the 1960s, and decided the best way to move the U.S. forward was to close virtually every school, college and university in the country for almost a decade. An entire decade’s worth of students received little or no education and floated through our society, terribly handicapped, ever since. Many of our most precious national monuments and historical artifacts were destroyed in the name of the new order.

China’s Cultural Revolution was unleashed by Chairman Mao Zedong as a political move to distract the population from the horror of the Great Leap Forward, a failed economic plan that resulted in mass starvation. The Cultural Revolution inflicted such chaos and brutality on an already tortured nation that it is hard to grasp. There remains in China a generation—who are roughly 50 to 60 years old today—that received little education. Being educated in the Soviet Union saved, and indoctrinated, a handful of the elite who run China today.

China’s View of the World
Each of the hypothetical examples above is flawed in any number of ways, but may give some insight into how the Chinese and its leaders view the world. The experiences in the U.S. that truly compare to what has happened to China in the last couple of centuries might resemble the genocide of Native Americans and the slavery of African Americans. Until the last 20 years, America’s worst decade in the last 200 years would be far preferable to China’s best decade.

Imperial collapse, foreign invasion and civil war have typified China’s modern experience. So when China behaves brutally, petulantly and, so often, reactively, this is largely a product of historical trauma of the highest order—a proud and ancient nation brought to its knees by both internal and external strife. Mao’s final madness was a terrible gift to a nation that is searching for a new path but remains distrustful of foreign nations and obsessed with internal stability.

When we look today to solve complex issues such as China’s fixed currency system, there are several implications:

China, its government and its citizenry, value stability very highly. So anything that threatens stability, whether that is a floating exchange rate (which devastated richer neighbors in the Asian Financial Crisis) or freedom for Tibet, will be treated with immense caution. China’s citizens seem to have accepted Deng Xioaping’s proposal, made in the shadow of the Tiananmen Square protests, of encouraging economic freedom while not tolerating challenges to the power and ideology of the state. The Communist Party has allowed a major degree of economic freedom, unleashing a market economy, while forcefully putting off political freedom to some distant future resolution. This is a deal that the vast majority of Chinese have embraced, at least while the economy is flourishing.

China will respond very negatively to harsh foreign pressure. Threats and insults in foreign negotiations, while often playing well to any nation’s domestic audience, are unlikely to do anything but encourage Chinese intransigency. China’s government does not dare to appear weak before its own population and feels time is on its side in most areas of friction. China sees negotiating with the West as a 300-year continuum, and it is playing the game very seriously with a huge commitment to winning a few rounds after so many losses.

China, as a nation, is a developing economy, with all the associated cultural baggage such terms imply in a post-colonial world. But unlike most such nations, China sees itself as a resurgent great power with the tools required to meet the West and Japan on an even playing field for the first time in the modern age. No other nation is in a comparable position of returning to greatness with a very large chip on the shoulder. This will make negotiations difficult and, at times, virtually impossible.

China’s industrial development, export success and rising domestic market give it a very strong hand in global negotiations. Today, we are literally in China’s shoes, or at least our children are. Any trade war would devastate our economy at least as much as China’s. Not to mention the many implications of China’s holdings of U.S. dollars. The potential of China’s market—where car sales have now exceeded those in the U.S., there are more cell phone users than European Union citizens, and more Internet connections than people in North America—keeps every nation rightfully nervous about being excluded. A fear China has used very effectively.

This is not an argument for handling China differently than other nations. Most developing countries have similar histories of colonial outrages and profound domestic trouble. But to attempt to understand China, one must recognize that a country that has been the Rome and Greece of Asia for over 2,000 years, rightfully, has great pride—just as we do. Its citizens know this history well. Sadly, we rarely know much about our own history let alone China’s deep and complex story.
I write this piece to warn against the simplistic notions about China that permeate our media, and to challenge the powerful special interests that want to paint China as a nation to be attacked, not vigorously debated. We face a long and very challenging dialogue with China, and I believe knowledge is an infinitely better negotiating tool than crude propaganda and simplistic nationalism.

Am I really saying China should be handled differently? No, just intelligently.

For More on China, I Recommend:

“The Search for Modern China,” by Jonathan Spence (The definitive history of modern China by our greatest living China scholar; “God’s Chinese Son,” Spence’s book on The Taiping is also an interesting read)
“China at the Center: 300 Years of Foreign Policy” by Mark Mancall
“The Tiananmen Papers,” edited by Liang Zhang, Andrew Nathan, Perry Link and Orville Schell (A fascinating view into the Chinese leadership’s mind)
“One Billion Customers,” by James McGregor
“Asia, America and the Transformation of Geopolitics,” by William Overholt

Monday, February 08, 2010

Would Jesus Default on His Mortgage Part 2

Richard Thaler, a behavioral economist and a professor at the University of Chicago Booth School of Business, has an op-ed on strategic defaulting. He suggests that Congress pass a law requiring loans to be modified if home prices fall past a trigger point, but that the banks be allowed to share in the upside if (maybe even when) the house is later sold at a profit.

Eric Posner, a law professor, and Luigi Zingales, an economist, both from the University of Chicago, have made an interesting suggestion: Any homeowner whose mortgage is underwater and who lives in a ZIP code where home prices have fallen at least 20 percent should be eligible for a loan modification. The bank would be required to reduce the mortgage by the average price reduction of homes in the neighborhood. In return, it would get 50 percent of the average gain in neighborhood prices — if there is one — when the house is eventually sold.

Because their homes would no longer be underwater, many people would no longer have a reason to default. And they would be motivated to maintain their homes because, if they later sold for more than the average price increase, they would keep all the extra profit.

Banks are unlikely to endorse this if they think people will keep paying off their mortgages. But if a new wave of foreclosures begins, the banks, too, would be better off under this plan. Rather than getting only the house’s foreclosure value, they would also get part of the eventual upside when the owner voluntarily sold the house.

This plan, which would require Congressional action, would not cost the government anything. It may not be perfect, but something like it may be necessary to head off a tsunami of strategic defaults.

It's an innovative suggestion, which I like. I doubt the banks will deal right now, so the solution is for people to start strategically defaulting en masse. Face it, if it was the banks who were buying the houses and we who were lending them the money to do so, they would have strategically defaulted months ago.

As an aside, he cites evidence that the nonrecourse provisions in California and Arizona raised closing costs to the tune of about $800 for every $100,000 that people borrowed. In other words, mortgagees in nonrecourse states have already paid for the right to default and leave the lender no recourse to sue them for the balance. From a solely business perspective, they might as well go and exercise that option - it's as if they bought a put option in investing (a put option being the right to sell a security at a specified price).