Rate Watch #798 Occupy Sanity Street.

Rate Watch #798 Occupy Sanity Street

October 21, 2011
by Dick Lepre
dicklepre@rpm-mtg.com
www.loanmine.com

Occupy Sanity Street

At the start I must state that I have been busy with work for the past 6 weeks and that I stopped watching the news on TV about 5 years ago. I read a lot on line and thus have an idea what is happening outside the confines of my home office.

For several weeks I have been reading about Occupy Wall Street. I find this to be something where the folks doing the demonstrating or occupying have perfectly good intentions but have constructed a strange brew of some correct and some incorrect ideas.

There is always stuff wrong with our society, our economic system, our government, businesses etc. and I would like to offer 1) suggestions for improvement and 2) comments of what is incorrect with some of the statements and notions of the OWS people.

What is incorrect:

One thing I have heard is that the Federal Reserve should be nationalized. I made a smart-ass FB comment this week to the effect: "right and we should nationalize the Grand Canyon, the IRS and the United Stated Army." I know that there are many, many people who have bizarre ideas about what the Fed does. This starts with the fact that all of the stock in the Fed is owned by member banks. However, the Fed is unlike any other entity. The stockholders do not appoint the Fed Board of Governors. The President nominates and the Senate approves. Also, 95% of the Fed's profits must go to the U.S. Treasury Department. The Fed is already nationalized. It does not work for the cigarette smoking man from X-Files or some secret cabal.

The common notion held by practically everyone is that banks and Wall Street caused the mortgage mess and the present dismal state of the economy. I made the case here that the housing bubble was mainly the consequence of the National Homeownership Strategy. Banks and Wall Street contributed by making the loans demanded by HUD and securitizing them.

Executive compensation

People complain that CEO's make too much. The average income (salary, bonus, stock options of the CEO's of the S&P 500) is about $9 million. The average NBA player has a salary of $5.15 million. Is the disparity between NBA player salaries and the thousands of people who work for the teams and arenas an issue of social injustice? Both S&P 500 CEO's and NBA players have competed against hundreds of competitors and come out on top. If you think that CEOs are greedy bastards that suck wages from their employees than feel free to complain than a beer at a basketball game costs $10 and the guy who sold it makes one beer an hour.

Student Loans

One of the complaints of OWS is student loans. Student loans are burdensome because they cannot be discharged in bankruptcy. The cost of a college education has doubled since 1998. Why not picket college Presidents? This is another case where government guarantee of debt has caused a bubble. Education should not be this expensive.

What is correct:

I agree that we need to sever investment banking from commercial banking and not have any public guarantee of investment banking. The problem at present is that as a consequence of the bursting of the housing bubble investment banking and commercial banking are completely jumbled together. Merrill-Lynch was acquired by BofA and the remaining post-Lehman investment banks were reconstituted as commercial banks and are now part of the Federal Reserve. We need to go back closer to the Glass-Steagall Act notion. The Glass-Steagall act prevented commercial banks from doing investment banking and was repealed in 1999.

After finding ways to sever investment and commercial banking we should go one step further. Investment banks should revert to the pre-1970 days when they were not public companies but, in essence, partnerships. If you are a part owner if an investment bank you can sell your piece when you retire. Severing Wall Street (the stock market) from investment banking would encourage sound and responsible investment banking.

Taxes

I think that at present fiscal policy is a disaster. Simpson-Bowles should be the starting point. I have proposed a Council of Fiscal Sustainability to sever the deficit from the political process. The key is not raising tax rates on the rich but eliminating most deductions. All of the details are in Simpson-Bowles.

Regulating What Banks Do

I agree that banks should be discouraged from practices such as high-frequency and proprietary trading and encouraged to actually make money by lending.

Occupy Wall Street

One may also view Occupy Wall Street as a counter-movement to the The Tea Party. The Tea Party is, in part, about downsizing government and letting individuals make choices and succeed or fail. OWS sounds like an updated version of the parts Communist Manifesto. Thus the 99% mantra.

The fallacy is that it was not banks and Wall Street which decided that:

"For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership."

This was from HUD. Wall Street did not invent the National Homeownership Strategy.

If you have something to add to this discussion please post a comment on the blog.

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Dick Lepre
RPM - SF
1400 Van Ness Avenue
San Francisco, CA 94109
DRE License # 01143973
NMLS Individual ID 302379
California Department of Real Estate - real estate broker license #01201643
dicklepre@rpm-mtg.com
Web site: www.loanmine.com
Blog: economy.typepad.com
(415) 244-9383
(866) 488-2051 fax

 

Comments

[Matt Penning]

Again, an excellent and cogent case making sense of the insanity we find ourselves in. Thank you.

[Frank]

"Occupy sanity street," indeed! It is great to see so many people finally realizing the insanity of giving money priority over everything else, even people's lives. It has been a long time coming.

[Frank]

To try to demonize OWS with talk of "communism" betrays a complete lack of understanding of what it is all about.

Any mass movement -- including OWS, the Tea Party, or whatever else -- invariably has a lunatic fringe of contrarians, but outside of that small lunatic fringe, nobody in OWS is clamoring for abolition of private enterprise.

We just want to "level the playing field", and provide everyone a REAL -- as opposed to ABSTRACT -- opportunity for a decent living.

If there are not as many jobs that provide a decent living than there are heads of household who need such jobs, such opportunity is merely ABSTRACT. To deny that reality is true pie-in-the sky fantasy world insanity.

In fact, many are small business owners like myself who, among other things, are angered at having to pay a higher % of our lesser incomes in taxes than the multi-millionaires who own the government, thanks to loopholes for the giants and regressive taxes on the low end, such as the pestilent, start-up killing "self-employment tax".

[Jaffer789]

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