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Wednesday, January 27, 2010

Tuesday, January 26, 2010

Treasury Weighs Fix to Foreclosure Program

A sure sign of incompetence is to continue to follow a losing course of action, only more so. That is what the Treasury is doing in its futile attempts to stem foreclosures (Treasury Weighs Fix to Foreclosure Program, New York Times, Business Section, January 22, 2010).

These attempts to vary interest rates or to write ff value are doomed to failure. The problem is structural: the servicers do not own the mortgages and only the owners can agree to modify the mortgages. As the mortgages have been sliced and diced into a multiplicity of tiny tranches, finding the owners is very difficult and getting all owners of a particular mortgage to agree to modifications is virtually impossible.

There is however an easy solution if only the Treasury could think outside its focus on mortgage modification. The solution is for the treasury to join with each troubled homeowner in a shared appreciation mortgage (SAM). The mortgage value and interest rate are unchanged: the homeowner pays what he or she can and the government picks up the balance. Over time, both homeowner and government build up equity in the home. Over time, the housing market is stabilized. Owners stay in their homes, lives and neighborhoods are not disrupted. I call that a win, win, win situation.

Sent to New York Times

Studies of Medical Marijuana Discouraged

Whatever happened to this administration's commitment to scientific research. You report that government bureaucracies are preventing Dr. Lyle Craker cannot get a license to grow various types of marijuana so that he can study their effectiveness (Researchers Find Studies of Medical Marijuana Discouraged, New York Times, January 19, 2010).

WSe cannot have science based medicine unless scientists ae allowed to do the science.

The message does not have seemed to reach the National Institute for Drug Abuse and the Federal Drug Administration that we are in a new era: an era in which scientific research is to be encouraged not discouraged.

Too many of the Bush norms seem to continue in effect.

Sent to New York Times

Paying Kids to Stay in School

David Whelan and Stuart Ablon argue that we should not pay kids to stay in school because adding extrinsic rewards (pay) to an intrinsically interesting activity (education) will undermine kids' interest in education (Letters, Boston Globe, January 17, 2010).

Their argument is flawed. The conditions under which intrinsic motivation is undermined by extrinsic rewards are quite subtle. If kids are rewarded for academic achievement, then paying for achievement will likely undermine the intrinsic motivation to achieve. However, if kids are paid for simply attending school, (that is for engaging in the activity rather than striving to accomplish excellence in the activity) then there is not likely to be an undermining effect (that is kids will still want to attend school).

Therefore I see no danger in the proposal (Lawrence Harmon, Boston Globe, January 12, 2010). In fact there will be major benefits to children whose life circumstances are characterized by poverty and the need to help support a family during their teen years.

On the other hand, I would argue that paying teachers on the basis of their students' achievement (grades and test scores) is very likely to reduce the teachers' intrinsic interest in the craft of teaching.

However I do agree with Whelan and Ablon that focusing on the barriers to a student's attendance at school is the key to developing appropriate solutions to the problems .

Sent to Boston Globe

Massachusetts Model

Republicans are looking at the Massachusetts race as a model for the GOP campaign throughout the country (Boston Globe, January 15: A1, A4).

It is, I hope, a failing model. GOP operatives argue that "the health care bill is a big empty vessel into which people can assign their pet peeves or anger." Scott Brown is an empty suit onto which voters can project their dearest wishes. He has little in the way of legislative accomplishment in Massachusetts.

Of course there is a better way to reform health care, but Scott Brown does not tell us what that is, he just mouths the platitude. The real question is,"Is there a politically feasible better way?" I think not. As Congress is so beholden to the lobbyists for all parties in the health care industry (except the patients).

Reform in our political system may have to precede reform in those areas where we need it most: health care, banking, and the alleviation of poverty.

Sent to Boston Globe

This Year's Housing Crisis

Your editorial continues to propose inside the box remedies that are proving unsuccessful (This Year's Housing Crisis, New York Times, January 5, 2010: A16). We need a more radical approach.

The truth is that it is very difficult to modify the terms (principal or interest rate) of a mortgage loan in a world in which mortgages have been diced and sliced into many derivative products. It is impossible or at least very difficult to identify the owners who will have to agree to the terms of any modifications.

There is a simple, albeit expensive, alternative: the Shared Appreciation Mortgage. With these, government could partner with homeowners having trouble paying the full mortgage: the homeowners would pay what they can, the government would pick up the rest. Each would build up equity in the home in proportion to their contribution. Over time, as housing prices recovered, the government might even make money in the deal.

This is solution that only requires agreement between the government and the homeowner; the mortgage servicers and the mortgage holders continue to get the original earnings stream; the homeowners keep their homes; neighborhoods are not devastated by multiple foreclosures; towns and ciites continue to receive a stream of property taxes.

It is sad to think that if this strategy had been followed when the housing markets began to collapse, SAMs would have sustained the value of the derivatives so big banks would not have needed direct bailouts. Wall Street and Main Street would have both been helped with the same money.

Sent to New York Times

Wednesday, January 20, 2010

Response to McCain petition to seat Brown

Dear Senator:

I received your email today asking me to sign a petition to seat Senator-Elect Brown as soon as possible.

First you must understand that the Massachusetts Secretary of State is bound by laws (not rules or conventions) that require delay in certifying an election until all votes have been counted.

Second, the remedy lies in your hands, you could I suppose suspend the Senate rules or convention that requires certification before seating a Senator elect.

As you were the standard bearer of the borrow and spend Republicans in the last Presidential election, complaints about "out of control spending" by the Democrats do little to advance your cause.

Finally as you have been the recipient of Government health care for most of your career, I am offended by your complaint about government interference in health care. Shame on you!

Sent to Senator John McCain, January 20, 2010

Sunday, January 17, 2010

Questions for Big Bankers

Your questioners omitted one important domain: the role of the rating agencies (Questions for the Big Bankers, January 13, 2010: A27).

We need to ask:

1. What role did the rating agencies play in the collapse?
2. How did the way rating agencies are compensated affect their ratings?
3. Did your bank go rating agency shopping to get good ratings for junk securities?
4. If a small financial transactions tax was instituted to provide an alternative source of payment to rating agencies (instead of being paid by the issuer of the securities), would your bank support that? Why or why not?

Respectfully submitted

Sent to New York Times

Roger Martin on Leadership

Roger Martin (Leading into 2010) is correct that coordination costs are a major expense in large organizations.

However, downsizing is not the answer. The same work has to be done and the coordination costs between an organization and its outsourced suppliers are much higher than the internal costs were.

Downsizing only works if you cut down on the amount or types of business you do; it does not work if one tries to do the same amount of work with fewer people.

Sent to Washington Post

Connect the dots

I was going to submit a letter to the editor about the great difficulty security services have in distinguishing relevant information from the irrelevant.

I don't need to: Wasserman's cartoon [Ed: Actually it was Toles, not Wasserman] today (January 11, 2009) says it all.

Thank you.

Sent to Boston Globe

Lax Oversight

Mr. Bernanke may be correct that lax oversight was responsible for the housing bubble (Lax Oversight Caused Bubble, Bernanke Says, New York Times, January 4, 2010: A1, A11).

But what caused the lax oversight? It was a lack of political will. The Clinton and Bush administrations were uninterested in regulation and did not ensure that the regulators did their jobs properly. As a result we have had economic collapse and the destruction of several asset classes.

Given the shilly-shallying going on in Congress with respect to developing a better regulatory regime and the presence of two former deregulators in high level economic positions in the Obama administration (Geithner and Summers), I despair that we will find the necessary political will any time soon.

Sent to New York Times

Yes it was torture

The Obama Justice Department has "urged the Supreme Court not to grant the victims' appeal because the illegality of torture was not 'clearly established' [between 2002 and 2004]" (Yes, It was Torture, and Illegal, New York Times, January 4, 2010: A16).

This bizarre position is similar to the continued obdurate defense put forth by the department of the pernicious States Secrets Privilege.

As a student of bureaucracy, I can only attribute these unreasonable positions to the continued lack of full time political appointees at senior levels in the department (e.g., Office of the Legal Counsel, Assistant Attorney General for Legal Policy). The present temporary incumbents seem to be continuing to use the Bush play book. It is time that they ceased to do so.

Sent to the New York Times

Limbaugh's Health Care (scroll down)

So Rush Limbaugh thinks there is nothing wrong with the American Health Care system (Limbaugh says heart health care system OK, Boston Globe, Saturday, January 2, 2010: A4). He is of course absolutely right; as long as you are rich.

In fact America has two health care systems: one for the rich and middle class; the other for the poor -- and more of us are slipping out of the middle class every day.

It is this second, health care for the poor, system that gives us our appalling standing in the international public health statistics.

We need reform, preferably with a public option now. As a triple UK/Canadian/US citizen, I am not afraid of a public option or even a single payer system.

Sent to Boston Globe

Monday, January 4, 2010

Limbaugh on Health Care

So Rush Limbaugh thinks there is nothing wrong with the American Health Care system (Limbaugh says heart health care system OK (Boston Globe, Saturday, January 2, 2010: A4). He is of course absolutely right; as long as you are rich.

In fact America has two health care systems: one for the rich and mddle class; the other for the poor -- and more of us are slipping out of the middle class every day.

It is this second, health care for the poor, system that gives us our appalling standing in the international public health statistics.

We need reform, preferably with a public option now. As a triple UK/Canadian/US citizen, I am not afraid of a public option or even a single payer system.

Sent to Boston Globe

Adding Injury to Injury

It is well known that lobbyists from the big pharmaceutical companies, the Insurance Companies, the for profit Hospital chains, and any rich stakeholder in the health care business are busy influencing legislators, pouring money into their campaign chests, and making sure that the forthcoming legislation reflects their interests.

Left out of the influential lobbies are the people who are actually paying for them: the ordinary people of America. Every time we buy an over the counter medicine, every time we fill a prescription, every time we pay a hospital bill, a tiny fraction of what we pay is allocated for lobbying by the businesses we patronize. Aggregated over hundreds of millions of transactions, that small fraction becomes the flood of corporate cash that finds itself in legislator's pockets.

Through our purchases, we are buying a health care bill that is flawed.

Just as in some jurisdictions union members have to ask that political contributions be deducted from their wages, as a customer or consumer I would like the right to withhold that fraction of my payment that goes to lobbying. If I had my way I would redirect it to charity.

At least then I would not be contributing to my own distress.

Sent to New York Times

I sent a more detailed letter to the Times later that week

The past six months have, in case we did not know already, demonstrated the malignant influence that corporate lobbying has had on legislation. It is time to call a halt.

Lobbyists are the cancers on the body politic; ordinary people cannot outspend them, but perhaps we can restrict their life blood but cutting the flow of money to them. This money comes from us, every penny of it. Every over-the-counter drug we buy, every prescription we fill, every hospital bill we pay has a fraction of a cent (a micro-cent) allocated by the companies to the lobbyists who have almost destroyed health care reform. Similarly every time we buy a gallon of gasoline we pay for the lobbyists who are impeding climate control. A micro-cent of every banking transaction we engage in goes to lobbyists who are destroying any chance we have of preventing the next big crash through sensible financial regulation. Over millions of people engaging in millions of transaction, the aggregation of these micro-cents turn into a flood of corporate cash that goes to the lobbyist and eventually. Ends up in the legislators' pockets. We pay them to advance their interests rather than ours.

In some jurisdictions, for Unions to raise funds for political purposes each individual member must specify that the money is to go for political purposes, otherwise an equivalent amount is given to charity. I propose that we insist that companies treat our micro-cents the same way.

I suggest an ongoing campaign to starve lobbyists of money. I intend to write to the companies with whom I do business that they divert the micro-cents from my purchases that would go to lobbyists to charity instead. After all, we are major stakeholders in their businesses; we have the upper hand; and we can go elsewhere if they refuse to comply.

Yes it is a quixotic and seemingly hopeless quest, but with the help of others, we can starve the lobbyists.

Remember that in 1971 Dr. Judah Folkman introduced the bizarre idea that cancer tumor growth could be inhibited by reducing the flow of blood to the cancerous tumor. Over the next 36 years he pursued the dream of curing cancer through the restriction of blood flow. He persevered despite skepticism from his colleagues. Finally in 2004 the FDA approved the use of cancer reducing drugs based on his research. So too, if others follow my example, we can starve the lobbyists of their life blood; let us hope it does not take 36 years.

Driving while Cell Phoning

Mr. Witonsky is wrong (Letters, New York Times, December 12, 2009: A34).

Using a voice-activated cell phone while driving is not the same thing as chatting with a passenger beside you.

When chatting with a passenger, that person is also aware of the road conditions, sensitive to unforeseen emergencies so will adjust whether or not he or she talks. The person at the other end of a cell phone conversations completely unaware of what is going on while one is driving so cannot adjust the pace of conversation as road conditions change.

The killer is the distracted attention of the driver, not whether the phone is hand held or fitted with some fancy new technology.

Sent to New York Times