A foreclosure sale is the result of a mortgage foreclosure.  When a homeowner cannot keep up with payments to the mortgage holder, the mortgage holder has the right to grab title to the property and protect their investment. 

Mortgage holders (mostly banks) are in the business of lending money.  They are not in favor of holding real estate.  Cash makes the bank’s bottom line; the value of assets like houses must be estimated and varies with market conditions.  Their one objective is to recover their investment. 

Their investment is the outstanding balance of the mortgage amount plus any profit they can recover.  However, with a foreclosure and an empty house, that investment grows every month the house is vacant, with taxes, insurance, maintenance and security expenses. 

Many angry homeowners, being evicted from their homes trash the house before leaving, and add to the bank’s expense. 

The current home mortgage crisis has hit banks like a growing tsunami since the start of the recession.  The loss of the homeowner’s employment, coupled with the plummet of the home’s value due to the glut of available homes was the reason many homeowners walked away from their mortgage.  This just added to the surplus of available homes, leaving the remainder of struggling homeowners holding on with only their pride. 

Bank foreclosure staffs were expected to handle any and all foreclosures coming to their notice, but as the tsunami grew in intensity, the process was bent on speed and quantity rather than fairness and quality. 

Republican President George W. Bush signed the TARP (Troubled Asset Relief Program) into law by on October 3, 2008.  The purpose of the bill was to buy assets and equity from private financial institutions to strengthen their positions, maintain American financial sector stability (avoid a financial meltdown crisis), and to offer five-year favorable loan modifications to homeowners whose loans were owned by Freddie Mac and Fannie Mae.   

The initial $350 billion was released immediately and the remaining $350 billion was released on January 15, 2009.  Although it was projected to cost $356 billion, it is estimated (October 2010) that it will cost only $30 billion (and may yet yield a profit) since almost most of the institutions that received funds have repaid or are repaying their obligations plus interest.  

The TARP program ended October 3, 2010 and all unspent and returned funds will go to reduce the federal deficit.  But the forclosure flood continues.  In 2009, 2.8 million homes were foreclosed, with 3 million expected in 2010.

The legal issues:

–Is the bank the current mortgage holder?  Banks often sell their mortgages to other institutions including Freddie Mac and Fannie Mae.  Do they actually own the mortgage they are foreclosing on?

–Did the foreclosing bank employees actually read and review the paperwork associated with the mortgage?   They are required to do it by law.  Were there errors or false data associated with the loan? 

–Was the loan simply “robo-signed” by bank employees interested in simply processing the record number of foreclosures and in the process violating the rights of the person holding the mortgage?  One Wells Fargo executive admitted signing as many as 150 foreclosure affidavits a day without checking any of the underlying facts.  How could they check the facts?  That volume in an 8-hour day means signing a document every 3 minutes.

Several large mortgage lenders have admitted that tens of thousands of legal affidavits were processed without reading or verifying the facts in the affidavits as required by law.  This lays a shadow of illegality on the process and opens the lenders to fraud and other broken laws; most banks stopped the foreclosure process in the 23 states that have a “judicial foreclosure” process that can be prosecuted by the courts. 

Bank of America, followed by several larger banks have stopped their foreclosure process in all 50 states, although the remaining 27 states have a non-judicial foreclosure process between borrowers and lenders.  

President Barack Obama vetoed a bill last week that would have made it easier for banks to approve foreclosure documents, that the White House said could hurt consumers. 

Banks might save money and recover some money but turning owners into renters until the house is sold.  Collect a large deposit from the former homeowner and offer occupancy for rent and maintenance like an apartment rather than leave the house empty.  The large deposit is insurance that the former owner will take care of the house for the bank.  The displaced family will no doubt go to a rental.  Why not make the rental good for both parties?

It should be clear that the bank that issued the original mortgage in many cases no longer owns the investment; they only service the debt.  They accept payments from the homeowner, pay taxes and other obligations, and forward the remainder to the debt owner. 

 However, for mortgages owned by the two government homeowner-financing agencies, Fannie Mae and Freddy Mac, the Treasury Department started a Making Homes Affordable initiative with two components, the Home Affordable Refinance Program (HARP), and the Home Affordable Modification Program (HAMP). 

HARP allows homeowners relief who have remained current on their mortgages by allowing them to refinance their mortgage up to 125 percent of the appraised value of their home at current mortgage rates. 

HAMP encourages any investor or servicing company to participate with financial incentives for loan modified through reduction of interest, extension of term to a maximum of 40 years, and forgiveness of balloon payments.  The goal is to bring principal, interest, insurance, association dues and PMI to below 31 percent of the verifiable household income.  There is a 90-day trial period before permanent modification is granted. 
 

Now, Fannie Mae has announced a new program for those homeowners on the brink of foreclosure who do not qualify for the HAMP plan.  In exchange for transferring ownership to Fannie Mae, the homeowner will be allowed to rent their homes and lessen the credit rating impact of foreclosure.  Fannie Mae will make available to the homeowner a 12-month lease with month-to-month extensions when it expires and will not market the house until after the initial 12 months. 

Rents will be determined by a private management company and market conditions.  Former homeowners will have to qualify to stay with rent set at 31 percent of their pre-tax income or less.

Freddie Mac already has a similar program in place, but foreclosure must be completed and only month-to-month leases are offered.

Both these programs are designed to allow the homeowners to stay in their homes for a reasonable period and stabilize neighborhoods.  The thinking is that it is difficult to market homes in neighborhoods with scores of empty and sometimes vandalized homes.   Even though people are renting, they will tend to care for the home they used to own.

In our jobless recovery, some landlords are offering big incentives to retain their tenants. 

The national unemployment problem has driven some renters to seek roommates, or move into cheaper quarters.  Some are moving in with family. 

The national apartment-vacancy rate is now at a 23-year high. 

The worst thing for a building or house owner is an empty living space.  They can minimize utilities, but mortgage payments and taxes remain in force, and there is less to collect to pay the bills. 

When an apartment or house is vacated, it can remain empty for months, exposing it to vandalism, and requiring painting, marketing and commissions to attract a new occupant.

Landlords are offering incentives and becoming easier on requirements for occupancy.  In a tight market, landlords would deny prospective tenants with living space credit issues like foreclosure or eviction, but in today’s market they are more open-minded.   

New tenants on average are paying roughly ten percent less than previous tenants.  Renewing tenants are being offered items like free months, waived pet deposits, flat-screen TVs, cash, new carpet, painting, or upgraded appliances. 

Landlords generally are not initially offering incentives to renewing tenants.  Since tenants can easily check the Internet for comparable rents in their area, landlords will respond to negotiation and many times offer incentives or match rents to renew.

Lower rents nationwide are pressuring house prices as well as the CPI (Consumer Price Index).   This will keep inflation down.  However, the good news for renters will be offset by more apartment complex defaults, and in turn, losses for small local banks.

So if you are in the market to rent, renew or buy, this is the ideal time to exert pressure on landlords and sellers for concessions. 

Don’t be greedy.  Negotiation involves both parties calculating how much it will cost the landlord or seller to wait for and attract the next prospect.  In the case of landlords, they are losing the rental amount each month.  Sellers will have to pay their mortgage payments and taxes until the property is transferred. 

It is not taking advantage.  It is business. 

Rental Vacancy Rates from 1956

Existing Home Sales from 1987

New Home Sales from 1963

Images posted by CalculatedRisk on 11/01/2009

These are impressive numbers, since January 20 is only 77 days behind us. 

Optimism, according to Merriam-Webster online dictionary, is an inclination to put the most favorable construction upon actions and events or to anticipate the best possible outcome.

Of course, the most difficult people to convince that things are getting better are the millions of unemployed, the millions who are paying “upside down” mortgages, where their equity is in the minus.  As a special note, credit goes out to the homeowners who are staying the course with their homes and paying what they owe.  These are the true optimists.

Americans who have had their 401(k) savings reduced to minimal amounts have the hardest job to be optimistic.  Credit also goes out to those who are employed and staying the course, continuing to contribute with each paycheck.  My wife recently had her company share of contributions terminated as her company struggles to remain viable, but she is an optimist, happy to have a paycheck.

The stock market is again showing signs of life.  The strongest companies are surviving, even though their earnings are miserable.  This shows there is light on the horizon for them.  The weakest companies have breathed their last, or been absorbed by others, both camps leaving their excessed employees to fend for themselves.  The market thrives on optimism and hope, and that is what is providing the plus days.  Will it rise to former heights?  Yes.  In our lifetimes? That is a question answered differently by optimists and those who are not.

Home sales are also showing signs of life, even if most of the sales are foreclosures.  As banks rid themselves of the “toxic” assets and begin to lend again to other than those with an 800 credit rating putting down 80% of the purchase price, houses will rise in value as demand for ownership increases.  Unfortunately, there is wreckage there as well.  People who have walked away, people who have foreclosed, and investors who bought those packaged mortgage loans that went bad will suffer.

Such is the fate of the speculator.  We have become used to deriding speculators of mortgages, commodities like oil and other areas, so that we have forgotten we are all speculators.  Definitions of speculation include a conclusion or opinion reached by contemplation, conjecture or surmise, and engagement in business transactions involving risk but offering the chance of large gains in the hope of profit.

Were we invested in the stock market and 401(k) with the hope it would go down or stay even?  Did we purchase our home with the hope it would depreciate in value?

We had great hopes.  It was easy to be optimistic when everything was going up.  It’s hard to be optimistic when everything has crashed and we feel we have to start building again.  But that is what makes us Americans – optimism and hope.  Our optimism is being reborn.  We look beyond tomorrow and see the light on the horizon.  Today we survive.  Today we build for the future.  Today we survive so tomorrow we may thrive.  Our optimism carries us forward, eyes on the horizon, eyes on the light.

998 adults is a small sample on which to base the optimistic outlook.  How do you feel?  Are you optimistic?

In an optimism test formulated by Queendom.com (the land of tests), questions ranged from keeping in touch with family and friends, and feeling you can rely on them in time of crisis, to finding good in most people and something positive in difficult situations, dealing with whatever life throws at you, your outlook on finding solutions to a crisis, and whether you will ever give up.

Some of my highest choices in answer to these questions:

• I can find some good in even the most disagreeable people.
• I can find something positive in even the most difficult situations.
• I actively keep in touch with friends and family.
• When I’m feeling down, I remind myself to focus on the good things in my life instead of the bad.
• When I have a difficult problem, I try to look at it from different angles in order to come up with a solution.
• I refuse to give up, no matter how tough things get.
• No matter what life throws at me, I believe that I can deal with it.
• I know how to calm myself down and relax when my life gets too hectic.
• I think that it’s important to maintain a sense of humor when life is particularly rough.
• Given the choice, I think that the majority of people would choose to do good rather than evil.

And my optimism test results were:

“According to your responses, you seem to be the type of person who believes strongly in the goodness of humankind.  You give almost everyone the benefit of the doubt, and accept what people say and do at face value instead of making conjectures about their motives.  You try to find the good in even the most difficult of people, and are much more willing to place your faith in others.  Although your trusting and accepting nature is refreshing, you may benefit from a more balanced perspective.  Unfortunately, believing that everyone you meet has good intentions leaves you open to being taken advantage of.  This doesn’t mean that you should be suspicious of others or their motives, but a little skepticism couldn’t hurt.”

I guess I’m a little too optimistic.  Ok scammers, come get me.

Of those millions laid off, 80% are men, casualties of the large layoffs in the construction and manufacturing industries.  Women make up the remaining 20%.  Perhaps that is because women are paid less for the same job as men, or perhaps there are only one-fifth as many women in the civilian workforce.

However, according to the Department of Labor, in 2008 there were 140 million employed, 75 million men (53.5%) and 65 million women (46.5%).  The conclusion we draw (valid or not), is, since women make less than men, and where women can fill the job, men are laid off first to save payroll costs.

In many families, both adults were working to pay their bills for living in our society and providing for advanced education for our children.

Ever since we took possession of the family cave in the dawn of human history, women have had the responsibility of tending the home fires while the men went out and hunted for food for their families.

This article focuses on a two-gender family with children, especially the ones hit by job loss.  It does not minimize the roles of single gender families, whether with children or not.  It under no circumstances minimizes the role of women throughout history.

Changing dynamics

In cases where the male breadwinner is the major earner, and loses his job, the family is faced with changing family dynamics.

It would be a sad family with a husband who sits home unemployed and still insists his employed spouse continue to perform all the tasks necessary to make their residence clean and the family comfortable.

No, family dynamics are changing as more men take on the roles at home and more women take on the major paycheck role.

Men are now finding out what women have done quietly and well for many millennia, “feathering the nest” as it were, so the family has a clean, warm home.

Men are learning to transport the children to school and perform other school tasks left to parents with open schedules.  Men are learning to clean, dust and vacuum the residence (no matter how badly), and many are learning to shop and cook the family dinner.

For each person that is a personal and sometimes a family decision, and a great deal of credit goes to those persons.

But after the kitchen is cleaned, the wash done, the carpets vacuumed, children are off to school, and all the other tasks of keeping a house and family are done, what will this new cadre of homemakers do with their time?  Is there time left over, as many men have alluded to for those same millennia?

My daughter’s boyfriend, Jonathan faced such a dilemma.  They moved from Charleston, SC, where Jonathan was employed and had many network contacts, to Myrtle Beach, SC where he had no contacts and no job.  Kristy was employed, which was the reason for the move.

So, while Kristy worked and Jonathan searched for a job in a crumbling economy, he also took on the tasks at home of meeting the school bus, cleaning, and washing clothes.  In truth, he has not yet mastered the skill of cooking outside of the microwave.

Emotional adjustment

For years, men thrived on being the breadwinner in the family.  After all, they were taught from their youth that it is a “man’s” job to make the income.  They went daily to their place of employment where others were expecting them, and immersed themselves in the mini-society of the work environment surrounding them.

Now, that is changed.  Men at home do not have that mini-society to which they have become accustomed.  Even if they socialize with other men also out of work, they generally have to be doing something to enjoy each other’s company.

They will attend, watch or play a sport, or pursue some other pastime.  Watching daytime TV or shopping together has not caught on.

Men are built to “do.”  For millennia, they were the builders, hunters, farmers and in general, providers.  Men cannot seem to enjoy the presence of the moment as women can, leading to a real problem with their egos and psyches.

Unemployed men many times consider themselves useless unless they are contributing more to their family than putting the dishes in the dishwasher or cleaning the bathrooms.  Their contribution has always been providing income, and now it is been replaced with providing family comfort and efficiency, perhaps while their partner provides the income.

Add to that, stress that the family balance sheet is unbalanced without two incomes, where bills may go unpaid, savings may evaporate, and their home may go into foreclosure.

Unemployment depression

The unemployment situation leads to feelings of worthlessness and depression in many men.  If we take 80% of those 11.7 million currently unemployed, that gives us 9.4 million potential cases of depression.

I certainly saw the signs in Jonathan.  He polled every business he could, and with each, he was told they were laying off instead of hiring.  He did connect with the local store of a major retailer (KB Toys), which went into liquidation after he was working there for three weeks.

What will these unemployed men do?  Will they quit seeking gainful employment, and settle for their depression, or will they tenaciously search for ways to supplement their family income, either through entering a new industry un-decimated by the recession, or starting a home business?  Will they fight their depression?

Jonathan did not quit.  He revisited companies he had been to before, hoping to be there at the right moment when they needed help and would hire the first person that walked through the door. 

It had worked for him before.  He was without work in Charleston at one point, and focused on a major food chain store in the area.  Every week, without fail, he would see the manager and ask for work, until finally the manager hired him joking, “It was the only way I could regain that half hour per week in my schedule.”  Jonathan was with that company for more than four years. 

Persistence paid off.

We are not quitters

Recently, in his first address to Congress, the president told the story of  14-year old Ty’Sheoma Bethea of Dillon, S.C., who wrote a letter seeking help for her dilapidated public high school, saying “We are just students trying to become lawyers, doctors, congressmen like yourself. We are not quitters.”

The president repeated the American affirmation, “we are not quitters.”

Jonathan found he had time on his hands after completing his home tasks.  He would talk to neighbors, coming home during the day to walk their dogs – and an idea was born.

Jonathan has a great love for animals of all types, especially domestic dogs and cats.  He printed up flyers advertsing that he was available for walking dogs and feeding pets anytime the owners were elsewhere, either on a business trip, vacation, or just working late. 

He set his rates below local kennel rates.  The neighborhood response was tenuous at first, but as pet owners referred him to pet owner friends, the business grew.  Before long, he was bringing in a significant income – not as much as employment, but he again was a functioning member of society. 

He did not quit.

My projection is that as the current American business structure collapses on itself like the implosion of a dying star, we will still labor and provide for our families. 

We are not an idle society. 

We have been taught that work acquires respect, and if for no other reason than to keep the respect of our family and our peers, we will work at something and provide an income.

Cottage industrialism

My vision is for the crumbling of big business into small entities and for the greatest rise of cottage industries since the Industrial Revolution to take their place. 

A cottage industry is defined as a system of production that takes place in private homes instead of a factory, turning out goods which are unique in some distinctive way.  Cottage industry can also encompass a loosely or informally organized group each working out of their own home.

There are still cottage industries today, where people construct a finshed product that can be sold or provide a service for locals.  The everyday products that have been recently available were constructed by foreign laborers whose rate of pay is a small fraction of American wages, but those businesses are crumbling as well, as their major markets dry up.

True, the business building cycle of the Industrial Revolution will probably repeat itself, where cottage industries are combined, bought out, or driven out by industrialists, but it won’t happen immediately. 

For my part, I need to provide for my family for the coming week and in the coming months.  I’ll let the future challenge me when it arrives.

There are thousands of products and services that can be provided out of a home.  Garages and basements can be turned into workshops.  Spare rooms can be turned into offices and workrooms where unique items may be created, by families working together. 

Small investments in “raw” materials may be turned into fast-selling finished goods.  The categories are art and craft, and practical products that bear our own unique mark.

Ed.Note: I have specifically avoided providing examples of products and services here.  I leave that to individual imagination.

Many former breadwinners who lost their jobs and are looking for a way to reclaim their self esteem hold to positions that people do not buy from “mom and pop” businesses or they are too old to start a business. 

However, with the development of the Internet, businesses compete on a level playing field.  When we surf the net for a product, we rarely know if it comes from a large business, or an entrepreneur working out of his garage or basement.

Several recent purchases I made, came from lone entrepreneurs who knew how to get the item I bought at the best price.  The guarantees were the same as large companies.

As far as too old, recently, the American Association of Retired Persons (AARP) found those age 50 and above account for 40% of the self-employed.

Consider entrepreneurs who started small, like Michael Dell, Walt Disney, Simon Cowell, Mary Kay Ash (started Mary Kay cosmetics, age 45),  Ben & Jerry, Bill Gates, Mark Cuban, Colonel Sanders (started KFC at age 65 with his first Social Security check) and many others. 

The New Age

Family dynamics have already been changing for years with ever more women in the workforce, and more single parent and single gender families.  Everyone works; it only matters that the work contributes to the family well-being. 

The new age will evolve family dynamics once again.

The last evolvement led to a life style requiring two salaries and did much to move families apart through the busy-ness of having to schedule every minute for every member.  It did teach our children that competitive development and keeping to a schedule were more important than spending time together with family members.

Perhaps the next evolvement of family dynamics, where adults can be home, providing income, sharing household tasks and relying on each other will draw our families closer.

As an update, Jonathan has started a new job with varying days, allowing him to keep the pet care business.  Everyone helps with the household tasks.  I even meet the school bus on occasion.

There is a future ahead, even if we must first walk through dark times, reviewing the hard lessons life has taught us. 

However, to keep us strong and focused, we should take up the cry and make it our motto:

“We are not quitters.”

The House version of the economic stimulus package was passed 244-188 almost entirely on party lines (so much for bipartisanship) with every Republican voting against it.

Republicans wanted to strip spending for rebuilding roads and bridges and upgrade healthcare and schools, and instead provide only tax cuts of about $478 billion.

Ed.note:  I didn’t think so during the campaign, but Obama was right.  The Republicans are out of touch.  The members of Congress don’t see the need for upgrading health care, since they are part of the Federal Employees Health Benefits program that gives them top-level health care with many choices, mostly paid for by the government.  They can’t see roads and bridges in need of repair from private jets and limousines.  And they don’t need jobs, but what good is a tax cut to the millions that are out of work and have no income to tax?

There are also aggressive groups against the stimulus, collectively known as the “Do-Nothings.”  Their arguments include that the stimulus money is aimed at getting consumers spending and borrowing again where spending and borrowing were the problem in the first place.  I would feel better if they understood the problem was centered on borrowing to spend, not spending by itself. 

Our economy relies on the balanced and even flow of money.  For the individual, this boils down to monthly payments.  The economy collapsed because the supply of money in paychecks, etc. suddenly failed to keep up with the speed of the stream of capital required to pass from debtor to creditor.  Since everyone is both a debtor and a creditor, the flow slowed to a trickle for all, and creditors stopped extending credit.

The opponents quote the government regrets spending in crisis, quoting the Iraqi war (preemptive strike against a dictator with a history of attempted genocide by poison gas?), the Patriot Act (more than 700 thwarted terrorist attacks?), and the $700 billion bailout plan (still in process, but judged a failure by opponents).

Many of the Do-Nothings argue that a painful recession is the best way to cure American’s runaway culture of irresponsibility and debt and the government should allow the economic chips to fall where they may.  It is brutal but it is called capitalism and it works, where the alternative is socialism and it doesn’t work.

Ed.Note: These are all Republicans speaking who would do anything, including the destruction of America to make the other party look bad.  And Socialism is not an all or nothing policy – that’s called Communism.

Full-page ads against the stimulus will include the names of 250 economists who oppose the stimulus.  According to the Bureau of Labor Statistics, there are 12,740 working economists (SOC code 19-3011) in this country, at an average annual salary of $86,700.  That is less than 2% that have a dissenting opinion; hardly a mandate. 

The Do-Nothings advance that it is morally improper to deliver a crushing debt load to the next generation.  The thought passes my mind that the next generation will be a lot fewer if people feel they have no economic future and refuse to bring children into that world. 

It is also historical fact that these bailouts are mostly recovered by the government over a period of time through an increased tax base and compliance from working Americans.  What better way to spend our money than to attempt to provide for our children’s future, especially by improving the educational system, which is the lion’s share of the spending.

The Do-Nothings point out that housing sales rose 6.5 percent from November to December and this could be an indication that lower prices will draw buyers into the system.  They minimize the point that the increase for that month was based on the strength of bargain hunters picking up foreclosed properties. 

Ed.Note:  I am not sure I trust an economist who considers a single month a trend.  I know two young couples, both with high-paying jobs and no children who have purchased five foreclosed properties with the intent of renting them.  They are not exactly a portrait of the average American family.

On the other hand, to be fair, the Do-Nothings point out that without the stimulus, corrections are being made naturally.  Weak companies are going bankrupt.  It is hoped that the stronger ones will pick up their market share and laid-off employees.  Other companies, like the automakers are facing the facts that they haven’t been making the products that customers really want. 

American families are paying down their enormous debt.  This helps the economy because the money is paid to the credit card company or bank, where it can add to its reserves and extend more credit to those who need it.  When backs are against the wall, Americans know the right thing to do.

“Our standard of living must come down to the point where it can be supported by organic output,” quoting an interview with an investment consultant.  Weren’t those guys some of the ones who helped topple the economy in the first place?

The Do-Nothings fully expect to lose their argument, but put out the ads because they feel they have to Do Something.  And even though they are against it, they think it won’t work because it is not enough.  ??

His two-year $820 billion economic recovery blueprint includes plans for computerized medical records, a national electricity grid to distribute renewable energy, lower taxes for everyone under his ‘affluent’ income line, modernized schools, and education initiatives.  The House bill includes roughly $550 billion in domestic spending and about $275 billion in tax cuts.

The goal is to advance the policies the president laid out in his campaign, including education improvement, health care cost reductions, moves toward energy independence and aid to low and middle income workers.

When passed, the legislation will require all business funding recipients to publish a plan for using the funds, along with purpose, cost, rationale, net job creation, and contact information about the plan to a new website Recovery.gov so that the public can review and comment.

About $275 billion is designated for tax cuts sent directly to the states to protect the jobs of firefighters, local government employees and public health workers as well as tax credits for education and first time homebuyers.

Job-creating road and bridge funds ($90 billion) will favor repairs to existing structures rather than funding new ones.  Repair jobs can be initialized faster, quickly injecting payroll spending into the economy, as well as curtailing urban sprawl leading to increased fuel consumption.

There will also be jobs created for clean energy development ($58 billion), a national electric grid, and funds to weatherize homes and public buildings.  It is hoped the recovery plan will spark energy efficient thinking and building as well as renewable energy technologies.

There is close to $142 billion allocated for education to protect the jobs of teachers as well as attempt to stop the “dropout crisis” and provide an easier path for many American youth to become productive taxpayers.  Studies have shown that cutting the dropout rates in half would pay back $9 for each $1 invested, representing new tax revenues and savings in welfare and incarcerations.

Funding will also go toward expanding wiring providers and implementing universal broadband service to extend Internet service to rural areas.  Internet access will allow companies to hire remote workers to work at home, saving on office expenses as well as allow individuals the opportunity to run small businesses on the Internet.  It will also be a vehicle for coordinating expanded health care records.  It is estimated that for each $1 invested in this area will return about $10 in increased productivity to the economy.

Health care investments ($111 billion) to the states to expand Medicaid will result in cost reductions connected to the medical industry’s expanded use of information technology.  The expanded use of technology to coordinate medical records ($20 billion) will minimize duplication, re-entering the same data, and “doctor shopping” for multiple issues of the same prescriptions.  On the negative side, this technology expansion has people concerned over privacy on a national network, but tight encryption methods are readily available.

President Obama’s election mandate, along with a party majority in Congress, presents him with an opportunity to spend and cut taxes more than any president in our history, with the possible exception of Franklin D. Roosevelt in the Great Depression. 

To highlight the momentum of the recovery proposal, we can compare it to the $16 billion stimulus Bill Clinton asked the Democratic-controlled Congress for in 1993 when he had just come into office, and they turned him down.

So far, this Congress has only cut out a $3,000 tax credit for businesses for each new hire.

The size of this package is annually nearly half as much as the total federal annual discretionary spending budget with the exception of Social Security, Medicare and Medicaid. 

The package is expected to be on the president’s desk by February 13, a scant three weeks after he took office.

He soon expects to sign legislation against gender pay discrimination (signed 1/29/2009) and for low-income child health care.  He has already issued an executive order removing the ban on federal abortion funding and expects to soon revive federal financing for embryonic stem-cell research.

Ed.Note: The Lilly Ledbetter Fair Play Act of 2009 was signed into law after passing both houses almost strictly along party lines.  The Republicans are acting like spoiled brats, voting against any Democratic legislation, no matter how it advances the causes of right and good for the country.  This was a vote by Republicans against Democrats, but it comes across as a vote against women and minority equality. 
I am ashamed of the Republican party.

President Obama will spend a lot of time himself lobbying for the passage of this bill.  He wants to go to the American people and report that this is a package passed by both parties in Congress.  However, Republican ‘nay Sayers’ claim this package will not work, so they are voting not to do anything with regard to government spending and have no positive suggestions of their own, except tax cuts.  The Republican approach is to offer tax cuts, and let the social economy recover and advance at a natural pace, a process that could take decades.

The package passed the both the House Appropriations committee and the committee on Ways and Means strictly along party lines and it is likely the bill will pass Congress along party lines as well.  This is another example of one Party driving while the other becomes a dragging anchor.

In addition to the $820 billion stimulus package, better known as the American Recovery and Reinvestment plan of 2009, the president will oversee the distribution of the second half of the $700 billion TARP program.  He has said he will have a strong message for bankers about sitting on any taxpayer bailout money, reminding them of their commitment to restart credit to both business and individual and work with struggling homeowners to avoid foreclosure.

Cleveland, located in Cuyahoga county made the list from the U.S. Census Bureau of the second most impoverished big city in the U.S.  Cleveland is ravaged with foreclosed homes and abandoned property that are treasure chests for thieves ripping copper and other materials out of the houses and selling it for cash. 

The thievery is destroying urban neighborhoods, which leaves the stripped property depressing the already reduced values of nearby homes.  Entire blocks become unsellable, leading remaining homeowners to consider abandoning their own property. 

The Cuyahoga project involves purchasing distressed properties first through tax lien buyouts, perhaps later through bank foreclosures, fixing them up for resale and selling them to private owners.

Speculators currently buy up foreclosed properties and flip them to unsuspecting buyers without making any repairs or improvements and sometimes sight unseen.  If the buyer can’t afford the improvements to make the house livable, another foreclosure or abandonment is imminent.

Funding

Funding for the project will come from penalties and interest collected from delinquent property taxes.  These collections are generally not entered into county budgets.  Cuyahoga expects to initially raise $8 to 9 million through this process.

As a side benefit, fixing up the houses will also provide jobs to some of those left unemployed by the housing crisis.

The Ohio House of Representatives voted 88-6 to allow Cuyahoga County to create a locally financed ‘land bank’ for this purpose.  The bill is expected to pass the Senate easily as well.

The plan is modeled on a similar program in Genesee County, Michigan.  Other large counties in Ohio are watching closely to see if this weapon against foreclosures works.  Initial uncertainty about the state government becoming landlords has subsided.

Many other counties are interested in the concept, but lack the funding ability because they are too small to raise meaningful amounts from unpaid tax liens.  These counties are already exploring ways to raise funds for the purpose.

In Cuyahoga County, the work goes on to work out the details.  They have a lot more homework to do. 

Credit and a big hoorah goes to this county and others like it, that are working to solve the housing crisis on their own initiative, rather than sit and wait for rescue from the federal government.

The Senate stopped discussion on the $14 billion automaker bailout bill for those car companies that recently flew their executives to Washington in their private jets to beg the government for a handout.
 

The Senate has voted

Our representatives in Congress have acted as they should.  The vote Thursday, December 11, on a procedural motion (whether they should proceed to the bill) fell short of the 60 votes (3/5)  needed to move forward.  So they are stuck, at least until January when the new Congress convenes.

As Harry Reid, Democratic Senate Majority Leader said Thursday night, “It’s over with.”

He later said with a twisted smile, “I dread looking at Wall Street tomorrow.  It’s not going to be a pleasant sight.”

The last time Congress failed to pass a bailout plan that most had assumed was a done deal the Dow Jones Industrial Average (DJIA) dropped 777 points in one afternoon. 

The DJIA instead rose more than 64 points on Friday, indicating the threatened bankruptcy of the major American automakers was a non-issue to investors. 

Senator Reid added, “I would hope that the President who has worked so well with us these past few weeks on this legislation would now consider using the TARP money to help the auto industry and workers of this country.  I hope that they would consider doing that as early as tomorrow.”
 

TARP funds

The White House has reported that it would consider using some of the $700 billion TARP money initially approved to bail out the financial system to keep the auto industry on life support until the new Congress convenes and the new administration moves in, but there was no timetable given.

President-elect Barack Obama is in favor of aiding the auto industry.

After the bailout collapse on Thursday, a Treasury spokesperson reported that the funds were designated only to help the financial sector.  Congress has halted legislation for 2008, and it may be required to amend H.R. 1424 (the $700 billion) before tapping it for another purpose. 

The Troubled Assets Recovery Program (TARP) is the $700 billion bailout plan for the financial industry passed in October.  All but $15 billion of the first $350 billion has been dedicated to distressed banks or insurance companies, and the Treasury Department is barred from dipping into the second $350 billion without formal notification from Congress.
 

Rebellion

Republican legislators have been in open rebellion with the White House over the auto bailout.  Although the President backed the bill passed by the House, Republican lawmakers held the line on the automakers restructuring their debt and bringing their employee compensation into line with foreign automakers before money is given them.

Senate Republicans would prefer that the automakers receive no taxpayer funds, since it would do nothing to correct the industry mismanagement and only postpone the inevitable bankruptcies.  But they don’t wish to be responsible for adding hundreds of thousands more Americans to the unemployment rolls.

The most vocal Senators opposing the bill were those from southern states with foreign auto plants employing their citizens.

The failed bill had intended to take the $14 billion from a green modernization fund passed earlier this year, using money already appropriated for automakers.  The green modernization fund authorized up to $25 billion in low-interest loans for retooling older auto factories, even though the cost for a complete job  hovers around $200 billion.
 

Independent polls of public sentiment indicate the majority of Americans are against the auto industry bailout by a small margin.
 

The real issue

Wages paid to employees of the American car makers are about the same as the foreign companies, roughly $30 per hour.  Over the years, the United Auto Workers (UAW) union has negotiated great benefits for their members, even though loss of market share has weakened the domestic automakers, raising their members’ total hourly rate at GM to $69 for active workers.  The foreign companies total rate is $48 per hour.  Those amounts include wages, healthcare and pensions.

GM alone, for example, also has 432,000 retirees and spouses for whom they are paying healthcare and pensions, while the foreign companies have far fewer retirees and leaner retiree benefits.
 

The Benefits

It is reported that for $10 per month, with a $250 deductible, UAW members and retirees receive comprehensive medical, prescription drug, hospital and surgical coverage.

When workers are laid off due to plant closings or reduction in workforce, they are transferred to the UAW JOBS bank for up to 48 weeks.  They can stay home and collect 85% pay (less unemployment benefits), or they can spend their days at the local union hall for 100% pay (less unemployment).  The workers at the union hall are sometimes asked to run errands, perform small tasks at the plant, or perform community service.

The health benefits add $1200 to the cost of each car, and the JOBS bank adds another $200. 

The added costs have prevented the big domestic automakers from competing in the small and midsize auto markets, so they focused their niche on trucks and large SUVs, where they could make a profit – until oil hit $140 a barrel and dealerships became glutted with unsold vehicles. 

The UAW is treating this as if it wasn’t their problem.
 

It will be their problem when the automakers file in bankruptcy court, and the judge orders the workers’ benefit contracts rewritten to competitive terms.

Bailout funding with no other changes would keep the expenses at the same level, and only serve to move bankruptcy a little further out in time.

The problem in Congress is that the UAW has spend thousands of volunteer hours and more than a half billion dollars of member dues, making sure Congress is dominantly Democratic, and now they are calling in their IOUs.
 

UAW killed the bailout

The big three automakers have been desperately axing thousands of jobs and closing plants, driven by lack of demand for the fuel-inhaling sport utilities that had been their sources of great profit.

However, the UAW killed the approval of the bill when union leaders insisted they would not renegotiate wages and benefits until 2011 when its contracts run out.  Congressional negotiators offered any date in 2009, and the union refused. 

They think this is a normal wage negotiation. 

They just don’t get it.
 

The victims

The autoworkers don’t see the $69 per hour.  They go to work every day and take home their $30 per hour wage, and when they lose their jobs, that salary is in jeopardy.  They have continued to receive their pay for nearly a year (up till now), and health benefits for 48 weeks. 

But after that?
 

Bankruptcy

The Big Three automakers employ around 250,000 people.  Parts suppliers employ around 100,000.  One out of ten U.S. jobs are tied to the auto sector with shared suppliers and vendors, adding up to around 2.5 million jobs that could be affected by the domino effect of auto industry bankruptcy.

GM and Chrysler have hired outside advisors to explore the bankruptcy option.  Their target date is January 2009.  Under Chapter 11, the automakers will be forced into a restructuring plan and still produce their products, while deferring payments to creditors.  Under those circumstances, the automakers will be forced to be profitable or go into liquidation.  And workers’ benefit contracts will certainly be rewritten by court order to competitive terms.

Car prices will doubtless go up, some models will be discontinued, the companies will scramble to increase the gas mileage of the remaining models, and they will take full advantage of the $31 billion available for plant modernization.

Bankruptcy is not such a bad option, but it depends on where you stand in this picture. 

If you are a consumer, would you purchase a car that may be discontinued, where its resale value goes to scrap and parts may be hard to find?

If you are a supplier, and your income is reduced or delayed due to an automaker bankruptcy, assuming you can stay in business, will you be ready to extend credit to the bankrupt company?

Employed autoworkers will probably continue at their wage level, but their benefits will take a huge hit.  Healthcare will certainly be restructured to be compatible with existing major health plans.  Existing pensions will no doubt remain intact, but future contributions to active workers will be slashed.

The JOBS bank will be instantly killed.

The UAW has conceded to suspend the JOBS bank program effective December 2008.

That is the worst news for the thousands upon thousands of excessed workers who must now exist on unemployment benefits until they can find work in areas where everyone is looking for work.  That in turn will increase the home foreclosures and bankruptcies in those hard hit areas of the country.

Maybe Congress, with the help of the incoming President, can allocate funds to provide jobs in those shock areas.  That legislation would certainly pass.
 

Nancy the blamer

Always having to have the last word, finger-pointing Nancy Pelosi, Democratic Speaker of the House, was certainly more verbal, doing what she does best, pinning the blame on Senate Republicans who voted “no.” 

Her statement, released around midnight Thursday, builds up her own accomplishments, with a laundry list of how her bill will save the world through cooperation, using terms like “bipartisan … protects taxpayers … preserves environmental standards … places tough accountability measures … to help ensure their (auto companies) long term viability and competitiveness. …  demanded deep concessions from … the executives, shareholders and the union. ”

She goes on pointing fingers at the Senate Republicans “refusal to support … bipartisan legislation … negotiated in good faith with the White House, the Senate and the automakers. 

She further accuses them as “irresponsible, especially at a time of economic hardship.”  She adds the scare threats; “consequences … failure to act … devastating to our economy, detrimental to workers, and destructive to the American automobile industry … unless …”

Now she thinks she should run the country, by telling the President what to do; ” … unless the President immediately directs Secretary Paulson to explore other short-term financial assistance options, including TARP and those available to the Federal Reserve.”

She then slams the door on any other course of action but hers.  Her word is final.  “That is the only viable option available at this time.”

For full disclosure, Nancy, three Democrats sided with 31 Republicans in opposition.  Harry Reid also voted “no” for procedural reasons.  Has he become a Republican?

A question; if Nancy negotiated with the Senate, why did they vote the bill down?

I can picture her stamping her foot down, wheeling around, and marching out of the room.  I wonder if she just bought a GM car.

Side note: I don’t like arrogance.  She has a good speechwriter.  I do like the alliteration of “devastating … detrimental … destructive”. 

I’m guessing finger-pointing Nancy now likes President Bush, since he can give her what she wants.  Not like last July, when she called the president “a total failure, losing all credibility with the American people on the war, on the economy, on energy, you name the subject” and that Congress had been “sweeping up after his mess over and over and over again.”
 

A final question; Nancy, did the UAW contribute to your election campaign?