Sunday, July 31, 2011

U.S. Debt, Who is at fault? Where do we go from here?

First, let’s talk about under the Bush administration how the rules for short selling was deregulated. Note: "Wikipedia", During hearings on the bankruptcy filing by Lehman Brothers and bailout of AIG before the House Committee on Oversight and Government Reform, former Lehman Brothers CEO Richard Fuld said a host of factors including a crisis of confidence and naked short-selling attacks followed by false rumors contributed to both the collapse of Bear Stearns and Lehman Brothers

Secondly, the lack of regulating the derivative market allowed billionaire’s to rape the stock market and investors. Note: "Wikipedia", 2000 December:Commodity Futures Modernization Act of 2000 (based on a report by Summers, Greenspan, Levitt, & Rainer) declares credit default swaps (and other derivatives) to be unregulated, banning the SEC, Fed, CTFC, state insurance companies, and others from meaningful oversight. CDS eventually destroy AIG & others.

• Third, it was under the Bush administration that the mortgage industry was deregulated. Don’t we all remember when then, President Bush stood on the White house lawn and said we are going to make home ownership affordable to millions of Americans? Deregulating the mortgage market is one of the biggest factors in causing the sub-prime mortgage market collapse. Note: "Wikipedia", subprime mortgages. 2002 June 17:Bush unveils his "Blueprint for the American Dream". He sets a goal of increasing minority home owners by at least 5.5 million by 2010 through billions of dollars in tax credits, subsidies and a Fannie Mae commitment of $440 billion to establish NeighborWorks America with faith based organizations. 2003-2007: U.S. subprime mortgages increased 292%, from $332 billion to $1.3 trillion, due primarily to the private sector entering the mortgage bond market, once an almost exclusive domain of government sponsored enterprises like Freddie Mac.

o The Federal Reserve fails to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned loan standards (employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability), emphasizing instead lender's ability to securitize and repackage subprime loans. 2007 Home sales continue to fall. The plunge in existing-home sales is the steepest since 1989. In Q1/2007, S&P/Case-Shiller house price index records first year-over-year decline in nationwide house prices since 1991. The subprime mortgage industry collapses, and a surge of foreclosure activity (twice as bad as 2006) and rising interest rates threaten to depress prices further as problems in the subprime markets spread to the near-prime and prime mortgage markets. April 3: According to CNN Money, business sources report lenders made $640 billion in subprime loans in 2006, nearly twice the level 3 years earlier; subprime loans amounted to about 20 percent of the nation's mortgage lending and about 17 percent of home purchases; financial firms and hedge funds likely own more than $1 trillion in securities backed by subprime mortgage; about 13 percent of subprime loans are now delinquent, more than five times the delinquency rate for home loans to borrowers with top credit; more than 2 percent of subprime loans had foreclosure proceedings start in the fourth quarter The monoline insurance companies (AMBAC, MBIA, ACA, &c) have written vast quantities of insurance against the failure of CDO tranches. Those tranches now begin to fail by the hundreds. The credit ratings agencies downgrade the monolines from AAA, but the monolines have a unique business model. If they don't have a AAA rating, then their main line of business (bond insurance) becomes impossible for them to perform. By 2009, the monolines have all crashed. 2008 October 1: The U.S. Senate passes HR1424, their version of the $700 billion bailout bill.

o October 1: The financial crisis spreads to Europe.

• October 3: President George W. Bush signs the Emergency Economic Stabilization Act, creating a $700 billion Troubled Assets Relief Program to purchase failing bank assets. It contains easing of the accounting rules that forced companies to collapse because of the existence of toxic mortgage-related investments. Also key to winning GOP support was a decision by the Securities and Exchange Commission to ease mark-to-market accounting rules that require financial institutions to show the deflated value of assets on their balance sheets."

o October 6–10: Worst week for the stock market in 75 years. The Dow Jones loses 22.1 percent, its worst week on record, down 40.3 percent since reaching a record high of 14,164.53 October 9, 2007. The Standard & Poor's 500 index loses 18.2 percent, its worst week since 1933, down 42.5 percent in since its own high October 9, 2007.

o October 6: Fed announces that it will provide $900 billion in short-term cash loans to banks.

o October 7: Fed makes emergency move to lend around $1.3 trillion directly to companies outside the financial sector.

o October 7: The Internal Revenue Service (IRS) relaxes rules on US corporations repatriating money held oversees in an attempt to inject liquidity into the US financial market. The new ruling allows the companies to receive loans from their foreign subsidiaries for longer periods and more times a year without triggering the 35% corporate income tax.

o October 8: Central banks in USA (Fed), England, China, Canada, Sweden, Switzerland and the European Central Bank cut rates in a coordinated effort to aid world economy.

o October 8: Fed also reduces its emergency lending rate to banks by half a percentage point, to 1.75 percent.

o October 8: White House considers taking ownership stakes in private banks as a part of the bailout bill. Warren Buffett and George Soros criticized the original approach of the bailout bill.

o October 11: The Dow Jones Industrial Average caps its worst week ever with its highest volatility day ever recorded in its 112 year history. Over the last eight trading days, the DJIA has dropped 22% amid worries of worsening credit crisis and global recession. Paper losses now on US stocks now total $8.4 trillion from the market highs last year.[87]

o October 11: The G7, a group of central bankers and finance ministers from the Group of Seven leading economies, meet in Washington and agree to urgent and exceptional coordinated action to prevent the credit crisis from throwing the world into depression. The G7 did not agree on the concrete plan that was hoped for.

o October 14: The US taps into the $700 billion available from the Emergency Economic Stabilization Act and announces the injection of $250 billion of public money into the US banking system. The form of the rescue will include the US government taking an equity position in banks that choose to participate in the program in exchange for certain restrictions such as executive compensation. Nine banks agreed to participate in the program and will receive half of the total funds: 1) Bank of America, 2) JPMorgan Chase, 3) Wells Fargo, 4) Citigroup, 5) Merrill Lynch, 6) Goldman Sachs, 7) Morgan Stanley, 8) Bank of New York Mellon and 9) State Street. Other US financial institutions eligible for the plan have until November 14 to agree to the terms.

October 21: The US Federal Reserve announces that it will spend $540 billion to purchase short-term debt from money market mutual funds. The large amount of redemption requests during the credit crisis have caused the money market funds to scale back lending to banks contributing to the credit freeze on interbank lending markets. This government is hoping the injection will help unfreeze the credit markets making it easier for businesses and banks to obtain loans. The structure of the plan involves the Fed setting up four special purpose vehicles that will purchase the assets.  2011 The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011.   It concluded that "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.

Not to be lost in all of this is the easing of “mark to market” (Mark-to-market or fair value accounting refers to accounting for the fair value of an asset or liability based on the current market price of the asset or liability, or for similar assets and liabilities, or based on another objectively assessed "fair" value.) on bank balance sheets, asked for by the “GOP” Republicans. This in itself is a legal way for banks to not tell us the truth of how much they are really worth, what happened to transparency?

These events not only collapsed financial markets in the U.S. but around the world. As a result the U.S. economy was sent into a tailspin that we are still in today.

I will admit, we have to get our spending under control, but the question needs to be asked, were do we start? We are spending billions in fighting two wars and now, one conflict overseas, should spending be cut there first? During this whole bank crisis, some banks took the bailout money reinvested and made billions on the back of taxpayers, should we demand that money back, plus that which they borrowed.

Yet, we hear talk about cutting entitlement programs, since when has social security, medicaid or medicare been entitlement programs? Most who receive these programs paid for them through payroll deductions. Social security is a promise made by the federal government, pay into it while you are working, if you become disabled or reach retirement age you will receive “payment”, sort of an american investment. Social security an “entitlement program”, here is what President Bush had to say about the program: “”, President George W. Bush made a shocking assertion back in 2005 when he was pushing to privatize Social Security. “A lot of people in America think there is a trust,” he said, “that we take your money in payroll taxes and then we hold it for you and then when you retire, we give it back to you. But that’s not the way it works. There is no trust fund — just IOUs ….”

Actually, working Americans have paid so much in Social Security payroll taxes during the past three decades that they have built up a $2.6 trillion surplus in the account. That money should make the system strong enough to cover the current level of benefits for the next 26 years. In the interim, a prudent government could restructure the program for the rest of the century, perhaps by means-testing benefits and rejiggering contributions.

But, unfortunately, Bush was right. In 1983, Congress and the Reagan administration adjusted Social Security taxes and benefits to put the program on an even keel that began to build up a huge surplus for investment. But Congress decided to “borrow” the surplus instead of investing. They’ve been using it to help pay for things that have nothing to do with Social Security, things the political establishment and tax-averse Americans wanted but didn’t want to pay for: invasions, education, highway repairs and so on. And, without giving any thought to paying the surplus money back, the federal government has been trading it for special Treasury bonds that politicians used to assure us were safe in a lockbox.

Just IOUs. In a lockbox.

Here are some programs I would call entitlement programs: Welfare programs such as: food stamps, shelter rent, homeless housing and WIC. As a people we have to ask ourselves if we want to help those who are less fortunate? Making the claim that we need to cut social programs to balance the budget vs. creating a millionaire’s tax is creating class warfare.

Where do we draw the line, the future of our great nation depends on how the majority of the people in this Country answers that question. One thing is for sure, social programs are not the sole blame for the financial crisis of the U.S., as a matter of fact one could argue the majority of the blame falls with the millionaire’s and billionaire’s on Wall St. and the politicians who robbed the social security fund.



Sunday, May 15, 2011

Design build vs. Design bid build, how much will the WalMart project cost you?

At the recent financial committee meeting this issue was front and center.  Chairman Brown convened a sub-committee to research several areas of concern regarding a new home for DSS. 1.  Should the County or CRC build the new DSS home?  2.  Should the project be a design build or design bid build, also known as a (municipal build)?  3.  Who can finance the project cheaper, County or CRC?

First. let's discuss the proposed Walmart project and how we got here.  The County realizing their lease on the current home of DSS at 25 railroad ave was coming to an end decided it no longer wanted to stay in it's current location for many reasons, space and financial being the overriding issues.  A search started for a new location, with the BOS, (board of supervisors) tentatively deciding to purchase Ockawamick, an old school building in Clavarack to create a County campus including a new home for DSS.  The old school was purchased for $1.5 million and turned out to be a public opinion disaster, costing several County Supervisors their bid for re-election.  A decision was made that the County would abandon the Ockawamick idea and move on.  Move on is what should be focused on, fellow Supervisors were being told, "we" the County have a clause to extend the lease in the current DSS location if we would like to stay there.  The clause was true, but what the County leadership failed to tell most Supervisors is, if we wanted to extend the lease on the current DSS home at 25 railroad ave. we hand to notify the owner 180 days prior to the lease expiring.  Well, that never happened, so come August, technically the County is out of options to stay at 25 railroad ave, without another location to move to.  The saving grace from what could be a major embarrassment for the County of having it's DSS dept. homeless come August is, the owner of the DSS location is willing to lease the building to the County until the end of the year.  Because of this, there is a mad dash to come up with some kind of solution that would find DSS a new home before the end of the year.  The problem with that is, little planning has been done, little financial study has been done and little communication has been offered to the public.  Ken Flood, Chairman of the CRC offered to take the lead on the WalMart project, but had the rug pulled from under him when he came before the BOS asking for $78,000 to do a space needs assessment regarding County agencies.  This decision put finding a new home for DSS even further behind and sent County leadership scrambling, desperate for an idea that could bail them out of what has been in my opinion a series of missteps made over the past couple of years.

This brings us to the current WalMart idea.  The next time we as Supervisors hear of a new proposed WalMart proposal was when a resolution came before the DPW committee asking for $500,000 to be awarded to an engineer for architecture work on the project.  The resolution was passed and sent to the finance committee for final approval to be sent to the full board for a vote .  At the finance committee it was argued by a couple of Supervisors that it is improper to hand out this kind of money, $500,000 without first putting the contract out for bid.  Commission of DPW, Dave Robinson and Chairman of the Board, Roy Brown argued that this is a professional contract and does not need to be bid out, which is true, but the question is, do we want to spend this kind of taxpayers money without making sure we are getting the best price for the work we need done?  Because of the mad dash to get this project done, Chairman Brown and Commissioner Robinson argued that time is an issue, if we RFP this contract it could take more time than "we" the County have.  This argument went back and forth, with a decision made for an expedited RFP process to be done, the process has not been laid out as of yet!  This brings me to the financial issue being raised.  The sub-committee convened by Chairman Brown has concluded that it would be cheaper for the County to finance the WalMart project rather than having the CRC finance it.  We have been told, if the County were to finance the project it would save up to $2 million dollars over the life of the project because the County can borrow funds at a cheaper rate than the CRC can.

What hasn't been thoroughly researched is, if a design build is cheaper than a design bid build.  At the finance committee meeting, members of the finance committee read some notes from the State Comptroller's office stating that municipalities were using agencies like the CRC to get around tax and labor issues.  This is a difficult issues which the State Legislature and the State Comptroller currently stand at odds over.  Yet, some Supervisors state that a design build is not an option because of the State Comptrollers issue with the program.  This couldn't be further from the truth, the law as written right now, clearly allows municipalities to do design builds through agencies like the CRC.

To this point is where I have a problem with the whole project.  Not that I'm a 100% behind the WalMart idea, a decision I'm convinced will take place whether I support it or not.  My position is, to make sure whatever direction the County goes, we do it in the smartest most economical way possible.  That means giving serious consideration to design build vs. municipal build.  For County leadership to form an opinion on design build without having talked to developers who do construction work for a living is, shall I say, shortsighted!  By declaring "we" the County is going to do the project, YES, takes the option of design build off the table, because it is true, the County itself cannot do a design build, it has to be done by an agency like the CRC or the developer of the building itself. 

County leadership has already stated, by the County financing the project it may save $2 million over the life of the project.  What is not said is, doing a design build may save even more, possibly $3 - $4 million on the project, no one knows because know one has asked.  All I hear is, a design build produces an inferior building, but Saratoga County and Albany County have recently built beautiful buildings using the design build process.

As the general public, you need to pay close attention to this project as it moves forward, you could be paying much more than need be.  Also, ask your Town Supervisor, how much in capital project funding does the County plan to bond for?  My guess would be, in the neighborhood of $25 - $30 million.  Then ask your Supervisor, can we as a County afford such an expense at a time when County unemployment is approaching 10% and 25% of the County is receiving social services?


Saturday, March 26, 2011

U.S. Census, What it means to us

Through out census season, as some of us call it, we endure a constant bombardment of information, speeches, phone calls and the last step, someone knocking on our door.  Why is all of this so important?

The Census is a gathering of information that outlines the population through out the U.S.  It tells us how fast various ethnic groups are growing in the U.S., where people are migrating to through out the U.S., how fast the population is growing or shrinking in the U.S. along with other population issues.  One important fact that needs to be articulated is, everyone is to be counted, whether you are black, white, Hispanic or other, whether you are in the U.S. legally or not.  People should know and be told that information gathered by the U.S. Census cannot be used against you for any reason.  The belief is, some don't get counted because they don't want people to know where they live or don't want the government to know they are here illegally.  This is wrong, we need to count everyone here in the U.S., because if you live here you are part of the system which requires tax dollars to provide you as well as others with services. 

How does this affect us and why should we stand and be counted.  One big reason, the Census is used to determine the number of Congressmen a State should have.  For example, having a Congressman representing a specific area gives you a real voice in Washington.  A Congressman is suppose to be a direct connect to Washington, reflecting the views of their constituents.  Once a Congressional district gets to big this tends not to happen.  With the Census number of 2010, New York State lost 3 Congressmen.  Now some may think this isn't a big deal, but this gives us less influence in Washington when it comes to federal funding.  A lot of Federal and State programs are structured to use population as a benchmark for qualification.  If a specific area has a dramatic change in population, whether up or down funding also mimics the movement of the population up or down.

Although Columbia County basically remained static, when in 2000 the population was 63,094, now in 2010 the County's population has been determined to be 63,096, a growth of 2 people over the last 10 years.

Hudson's fate isn't so positive, Hudson had a population of 7,524 in 2000, in 2010 it has been determined that Hudson's new population is now 6,713 a decrease of 813 or 10.8%, the largest population decrease in Columbia County NY.

Although, this appears to be a small drop in Hudson's population, the affects of a drop like this will be felt City wide.  Hudson stands to lose Federal, State and County funding if the current numbers hold up.  This means, the taxpayers of Hudson will have to pay more for the same services we currently receive if we are to lose funding because of shrinkage in population.  One would think, that if the population is shrinking less service is needed, but it doesn't seem that way currently.  As someone who represents the 4th Ward in the City of Hudson, it seems our needs are getting greater not less.  It's because of all the issues and worries I have outlined above Mayor Rick Scalera, Council President Don Moore and I are reviewing the 2010 census information to determine what the next move for Hudson should be regarding the census results.  Residents of Hudson, all residents of Hudson need to stand and be counted, Hudson's financial future depends on it.

Wednesday, March 2, 2011

The Battle Of Education

As we have all seen, we are all going to have to share in the pain of getting NYS back to fiscal stability.

At the core of some cuts being proposed by Governor Cuomo is aid to our schools. What that means for most school districts, is layoffs or at minimum program cuts. As someone who believes layoffs should be of last resort, I fear most school districts may be unable to avoid them. Understanding this, I took sometime to watch the documentary by Geoffrey Canada called “waiting for superman”. Waiting for Superman, is a documentary showing how families who have little means struggle to get their kids a quality education. It goes into the school district and identifies what Geoffrey Canada believes is part of the problem why we have under performing schools, the tenure system.

Geoffrey Canada points out that after 3 years on the job teachers are granted tenure status. At the college level, in order to receive tenure, one would have to go before a board of peers and be evaluated on performance along with other qualifications and measures. In this process only about 1/3 of college professors ever get tenure.

Today, Governor Cuomo proposed a bill that would end LIFO, (last in, first out), which relies exclusively on seniority. Some are arguing that this would disrupt the stability to the teaching profession. As it stands right now, in order to fire a teacher that is underperforming other teachers, that teacher would have to basically commit a crime. Very few jobs have the same kind of job security as teachers, one that comes to mind is police officers. One of the problems that has come with teachers who reach tenure is, some, not all, once they get tenure tend to relax on their responsibilities as a teacher. Most of us, without naming any specific teacher, has had a teacher who would put the daily assignment on the chalkboard and then you wouldn’t see them until the bell rang to signify the end of class. In the private world, like working for Goldman Sachs, Microsoft or even Walmart, if you are amongst the bottom performing employees in the company your employment status would be tenuous at best. Thus driving home that work performance and measures are the standard, essentially making companies more efficient and effective.

This begs the question, why shouldn’t teacher’s employment status be based on performance measures, which is the standard most who work in the U.S. follow?

Also at issue is the bureaucracy of the school system. The pay of school superintendants is being questioned along with how many school districts are actually needed in any given area. These issues are going be an ongoing battle that may end with the consolidation of school districts to lower cost.

School budgets are amongst some of the most pressing issues facing our communities today. Questions like, how should our school budgets be funded? should a cap be put on our school budgets? should smaller school districts be forced to consolidate?

One thing is clear, as taxes rise and employment opportunities continue to shrink people are going to scrutinize where every penny of their tax dollars are being spent. At the rate we are going, using the State of Wisconsin as an example, battles are going to be fought over pension obligations, healthcare obligations and how school budgets are funded.

I for one believe a start would be to extend the millionaire’s tax. I would be willing to compermize increasing the minimum threshold level to a salary of maybe something like $500,000 or more, but that is a debate point, getting rid of the tax should not be a option. Also, the current method of funding school budgets through property tax is broken and it needs to be addressed in the very near future. I think regarding this issue, everything should be on the table, from a grocery tax to an income tax. However it is decided to address this problem, it needs to be modeled to include a greater portion of the population instead of putting the heft of the financial burden on homeowners.

Our schools and the quality of education for our children is a battle that will not end anytime soon. In order to keep pace with emerging countries, we need to do more with less.