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Sunday, December 13, 2009

All's not fair in health care reform

Your editors did the readers a disservice by not revealing the more recent partisan affiliation of the author of "All's not fair in health reform bills," (Boston Globe, December 10, 2009: A19).

Dr Holz-Eakin served as non-partisan director of the Congressional Budget Office from 2003 to 2005. However in 2007 and 2008 he was chief economic adviser to the McCain Presidential Campaign. This I think nullifies his non-partisan credentials.

Yes, there is much that is unfair in the bill: how about preventing women paying for abortion insurance coverage themselves?

Most of the issues he points to are endemic in tax/benefit laws. In this case, more gradual tapering off of the subsidies would be effective in removing the traps.

Sent to Boston Globe

Sent to Boston Globe

Meltown causes are still in place

I agree with your op-ed writer, Frank Porter, that the rating agencies cannot continue to go on as they have in the past (Meltdown causes are still in place, Boston Globe, December 9, 2009: A19).

My solution would be a bit different, let the agenies' paymasters be the investors. Each financial transaction would have a small fee attached to it, like a Tobin tax. These fees would be used to pay the rating agencies; to keep them honest, a portion of the pay would be tied to achievement, that is the medium and long term accuracy of their ratings.

Such a system would eliminate the current conflict of interest faced by the rating agencies who are paid by the very firms/issuers they rate.

Sent to the Boston Globe (also sent a similar letter to the NYTimes)

Friday, December 4, 2009

Harvard Ignored Warnings

It terrifies me that someone who insisted that Harvard gamble with its lunch money is now a senior economic adviser to the President (Harvard ignored warning about investments, Boston Globe, November 29, 2009: A1, A7).

Sent to Boston Globe

U.S. to Pressure Bankers

The government is hoping to pressure bankers into reducing the mortgage payments to be made by distressed homeowners (U.S. to Pressure Mortgage Firms for Loan Relief, New York Times, November 29, 2009: A1, A21).

Bankers have already demonstrated that they have no shame, so such pressure is futile. There are also structural impediments to companies being able to do what the government wants. The mortgage servicers have a fiduciary duty to the mortgage holders and would have to get their permission for any downgrading. As each mortgage has been diced and shredded into multiple derivative products, each mortgage has a multiplicity of owners. It may well be impossible to get them all to agree to a downgrading.

It is time for the government to take a straightforward step: Enter into agreement with each distressed homeowner to replace the current mortgage with a Shared Appreciation Mortgage with the same terms (dollar amount, interest rate, payment terms, etc). The homeowner will pay what he or she can, the government will pick up the rest of the mortgage bill. Over time, both homeowner and government will build up equity in the home and will share in any gains when the house is eventually sold.

This is a win-win-win-win: for government which will finally be seen as doing something for ordinary people, for investors whose income stream is maintained, for homeowners who can stay in their houses, and for their communities which no longer face the blight of foreclosures.

Let's do it now!

Sent to New York Times

Albany Idles as State Nears Its Last Dollar

Albany is not alone. In States across the nation from California to Massachusetts, state revenues are dropping and state expenses for social services are rising (Albany Idles As State Nears Its Last Dollar, New York Times, November 27, 2009: A1, A27).

What we need is another federal stimulus. This should have two major thrusts. First each State should receive funding equivalent to about 20% of its 2007 budget. This would enable states to meet their responsibilities with minimal cuts in vital social programs and would also enable them to maintain state aid to the cities and towns in their jurisdictions.

The second thrust would be to help homeowners. Current efforts to avert foreclosures are not working. A powerful alternative would be for the Federal Government to partner with distressed homeowners by entering in to a Shared Appreciation Mortgage with the homeowner. The homeowner would pay what she/he could; the government would pick up the rest. Both homeowner and government would, over time, build up equity in the property and share, in proportion to their contributions, when the housed was sold. That would be a win-win-win: for the government as it would underpin the mortgage derivative market; for the homeowners as they could stay in their houses; for communities as the blight of foreclosure would recede.

Sent to New York Times