When Jon Stewart has the smartest sounding idea around, we're in trouble...

So, Jon Stewart floats this option every time anyone remotely connected to the economy is on his show, and I have yet to hear one of them argue why it can't be done. Nobody has put forward a reason why his option would be worse than any of the other options we've heard.

Here's Stewart's idea in a nutshell, then I'll add my own brilliant flourishes (make it shiny!):

- The insurance companies (like AIG) are in trouble, because they have insured these loans that just aren't going to get paid back, and they can't afford to cover the banks' losses;
- The banks are in trouble because they have all of these loans on their books that aren't going to get paid back, and so their actual capital is less than what they need to be able to loan money out like they're supposed to;
- The homeowners are in trouble because they have these mortgages they can't pay back because they were stupid/gullible/greedy/whatever and were lured into taking out mortgages that they couldn't afford (and shouldn't have been approved for).

So far, our solution has been to give money to the insurance companies and banks: Now the insurance companies can cover the losses they've insured at the banks, and the banks can start lending money again. Homeowners... well, sorry, you're screwed... but you should have known better!

The problem is that the insurance companies and the banks aren't taking the money and using it to fix the economy, they're taking it and awarding themselves crazy bonuses, throwing lavish events, and not putting the money back into circulation in the form of loans, etc. So the economy is not moving forward, and our tax dollars are disappearing.

Jon Stewart thinks it's time to give the 3rd party in the debacle a chance to show us what they'll do with the money. Why not give the bailout money to the homeowners so they can pay off their mortgages? Then, the toxic assets aren't toxic anymore, banks balance books look like they're supposed to (provided they don't start making stupid loans again), AIG et. al. don't have to cover the losses on those loans because they're not losses anymore... problem solved, right?

Those are the pros, what are the cons?
1) Well, do homeowners who took risks they should have known better than taking be bailed out by the goverment? Is that fair to others who either continue to make their payments, or to others who didn't buy a home because they knew that they couldn't really afford it?
2) If we just give money to them, how do we know they'll use it responsibly to pay down their debt? What if they waste it on frivolous spending?

It's funny, because the cons of giving the money to the homeowners are the same as the ocns we've seen fleshed out in gory detail for the banks and insurance giants. So what if we can structure a bailout of homeowners that takes some of our experience with the financial institutions into account?

Right now, we own part of AIG and several banks as taxpayers. I'm not interested in owning those companies, I'd rather own houses! What if the government buys houses from people who are stuck in houses that they're in danger of defaulting on? Here are some ideas to make this work:

1) The government will buy any home that is in danger of foreclosure under certain conditions. Some conditions might have to do with when the loans originated, the payment history before interest was reset for ARMs, the percentage of equity versus the current appraised value of the property, etc.
2) The government will pay a price that covers the payoff amount of the mortgage, plus a percentage of the equity based on some formula that takes the aforementioned conditions into account. The payoff money for the mortgage does not go to the homeowner, but directly to the lending institution, releasing the title to the government. The balance goes to the homeowner in exchange for releasing the title to the government.
3) The government then immediately puts the home on the market, using a formula for the price that takes into account the price paid for the home and the current appraised value for the home. Any financial institution that wants to handle the mortgage for these government sales must choose from a limited number of options, like fixed-rate 30-year notes with minimal interest rates. It might even be an option to offer 40 or 50 year notes to qualifying buyers.
4) Current occupants of the home can be given the first opportunity to apply for the new loan and buy the house back from the government. If they apply (with realistic qualifications), they don't have to move out of the house and then move back in. They don't get the house for free, they get a restructured loan with government assistance.

So, the loans are no longer toxic, just a little bit nauseating. The banks exchange theoretical assetts and interest income that they'll never get back for a less amazing looking return, but a return they will actually receive. The government intervenes to make sure that the bank recoups its initial investment plus interest, though the interest is less amazing than they thought they could get in their pre-bubble-burst fantasy world.

Insurers don't need to save the banks, therefore they don't need government assistance, therefore they can use their own money to pay out bonuses and throw lavish to-dos.

Homeowners don't get a free house from the government, they just get another chance to pay off their debt with restructured loans that are more realistic. People who waited and didn't buy a home with crazy, unrealistic rates now have a chance to buy a house with reasonable rates that will stay reasonable from the government from those homeowners who really shouldn't have even tried, and who lose their homes but don't end up hopelessly in debt.

Why not? There's lots of cons, but I posit that the downside is less dreary than the current system of propping up the financial institutions directly. They've shown they can't be trusted to be responsible with our money. I'm all for giving the little guys a chance to disappoint us. We might be pleasantly surprised...

- "Now begone, before somebody drops a house on you!"

legal + profitable = moral?

On my way to work today, I was listening to Morning Edition on NPR and I heard a story about an oil boom in the Russian island of Sakhalin. Apparently, foreign oil companies (primarily American) have come in and made a fortune... but the locals are not profiting a bit, and they're starting to get a little bit upset.

One of the guys they interviewed for the story was a veteran of the Alaskan oil boom and had represented his company there. In Alaska, the people who live there were paid for the right to drill on the land, and received rather substantial royalty checks every month. Needless to say, they thought that the oil company being there was a good thing. This guy is contrasting that to the situation in Russia, where the system is corrupt and the government contacts, mafia enforcers and local "bosses" are reaping all of the profit, while the locals are getting nothing.

What really caught my attention was that the American guy said something like "that's just the way it is in Russia, and if you want to do business here, you have to go along with it."

If that's the way it is, and you know it's not right, why in the world would you want to do business there?

Do I really have to answer that?

The American religion of consumerism/capitalism has made it a "sin" to pass up an opportunity to make a profit. Heck, it's even illegal. Time and time again, I've heard CEO's, financial analysts, stockbrokers, and news commentators state that a company has a "legal responsibility to its stockholders" to make as much profit as they possibly can. That refrain is constantly used as justification for pursuing the most predatory and morally questionable practices... as long as they're not specifically illegal.

So, under this system, a company would be acting unethically if it passed up an opportunity to make scads of cash by partnering with a corrupt, oppressive system if their only qualms were moral. As long as there's no law preventing them, they HAVE to pursue the opportunity.

I first started thinking about this a couple of years ago, when I heard another NPR story about the impact that the "war on tobacco" is having on tobacco farmers in the US. One tobacco farmer who was interviewed said that in his view, the state (I don't remember which one he was from) should use some of the money they got from the tobacco companies as a legal settlement to subsidize his TOBACCO FARMING, since the settlement has made it harder for the big tobacco companies to pay him as much for his product. This guy was totally serious. He saw no problem with claiming that some of the money the states were awarded BECAUSE TOBACCO HARMS AND KILLS PEOPLE should rightfully go to him so that he can afford to continue GROWING TOBACCO.

I thought that this guy actually exemplified the sort of new moral compass that defines American economics and business. The reason this guy started growing tobacco was because it was profitable. The question of whether he SHOULD grow a crop that didn't contribute nutritionally to anyone, but rather served only to sicken and kill them was not part of the equation. The closest this guy came to considering this choice from a moral standpoint was to ask himself "is it against the law for me to grow tobacco?" The choice was not whether he should use his resources as a farmer to produce a product that contributed to people's health and well-being or to their illness and death; the choice was which crop that he is legally allowed to grow will net him the most profit.

In American business circles, to say "I haven't done anything wrong," actually means "I haven't done anything illegal." Partly to blame is our mania to use legislation as our exclusive weapon against predatory or oppressive practices. Remember the old saying, "you can't legislate morality"? Well, it's right. All the laws in the world won't make people moral. The most we can hope for from laws is that they limit the amount of harm the powerful can inflict on the vulnerable.

So what can we do about it? Pass even more laws? I would caution us against continuing down that road. By no means should we abandon legislation which is designed to protect the vulnerable, but neither should we assume that passing those laws is all that is necessary to establish justice. A person or group of business-people must want to pursue practices that put the considerations of the needy above those of themselves and their (mostly wealthy) stockholders. A power and authority higher than human laws is needed to accomplish that. An authority that considers the vulnerable before the powerful, who raises the valleys and lowers the hills, who brings calamity upon the wealthy and hope to the poor.

Don't worry, it's coming. Until then, all we can do is decide to accept or reject the morality of profit for ourselves, and to live accordingly. To join ourselves to a people who live by a different hope and under a Truth so large that it obliterates the lies that define our broken world.

Sounds simple, huh? It is. It's also so difficult that it's impossible to do ourselves, and impossible to do alone.

So don't do it yourself. And don't do it alone.

- "I'm mad as hell, and I'm not going to take it anymore!"

I mean, how much do teachers DESERVE to get paid, anyway?

Arnold is backing a plan to link teacher's pay to "merit." I think this is an excellent idea. I mean, as a teacher myself, I would love to actually be paid a salary commensurate to the importance of the work that I do, as well as the time, training, and effort that I put into it.
As I said, this is an excellent idea. Far too excellent to be limited to teachers. I think that everyone should be paid an amount that their performance merits. I think that CEO's of major corporations in particular should be paid according to some sort of merit based rubric.
I mean, did you know that Carly Fiorina (outgoing CEO of Hewlett Packard) stands to make 42 MILLION DOLLARS... for being fired? This is not salary money, by which I mean money she receives as compensation for work performed. This is money she's getting for STOPPING working for HP! This woman is making more money than the entire faculty of my school will make in 15 years... for NOT working! And why is she being asked to stop working for HP? Do you think that it's because her performance has generated more money for the company than expected? Is this outrageous compensation merited on the basis of the amount of money her performance generated for the stockholders from whose pockets this money will come (not to mention the employees whose employment and salaries actually are directly affected by the performance of the company, and for whom those 42 million could have contributed to benefits or bonuses)? If it were, do you think she'd be fired?
Anyway, that whole paragraph was an extended aside. What I really want to write about is "merit pay" for teachers. There are two reasons I can think of to institute such a system. First of all, it could be intended as an incentive. If we link pay to merit, teachers will be encouraged to get off of their backsides and actually start doing their jobs. I don't think I need to explain to you why teachers find this attitude to be insulting, demeaning, unfair, inaccurate, misinformed, ignorant, and several other adjectives, too. I think, however, that this view is fundamentally flawed for another reason. Please bear with me as I set this up.
The Bureau of Labor Statistics reported that in 2003 (the numbers for 2004 aren't out yet), the average hourly wage for educators in non-supervisory positions was $15.64. Only two other categories were lower: Leisure/Hospitatlity (i.e. the people who put those mints on your pillow in hotels and clean rock-star excretions off the curtains) and Retail sales (i.e. the high school students at the GAP who are apparently in the middle of growth spurts rendering their shirts too short to cover their navels, and the elderly people who shoudn't have to work anymore but since Social Security isn't enough to pay the bills they've been fortunate enough to have their otherwise miserable lives filled with joy due to their job at Walmart, at lease according to the commercials). Who makes more than teachers? Well, manufacturing is slightly higher, with financial services, natural resources and mining, professional and business services and wholesale marketing making more than $17/hour on average. Construction is at almost $19/hour on average: that's over 20% more than educators. At the top of the list, Information services and Transportation and Utilities workers average over $20/hour.
So, what's the point of all these statistics? I just want to make the case that whatever motivates people to become teachers, it's probably not the money. Most people who come to education from other professions are not former hotel workers or Old Navy lifers. The level of education required to be a teacher (Bachelor's degree plus 1.5-3 years of postgraduate education) is a lot higher than most entry level positions. Your rank-and-file teacher does not see salary as a financial incentive to do their job and do it well. Rather, their salary allows them to pursue teaching by giving them enough money to live on so they don't have to get another job. The reasons they want to teach are not financial, but the salary is necessary for teaching to be a viable option.
That attitude has allowed market forces to keep the salary of a teacher low, below that of a construction worker or electrician. As long as the salary offered a teacher is enough to support themselves and their families in a modest fashion, the kinds of people who become teachers will continue to work. Labor disputes in education are the polar opposite of labor disputes in professional sports. Teachers protest when the amount of money they are paid are insufficient to support their families and will drive them into other lines of work just to make ends meet, or when starting salaries are insufficient to allow prospective teachers to pay off debts (remember, they need to take a year or more off of work to get their teaching credential (which costs money), take a lot of tests (all of which also cost money) and do their unpaid student teaching!) and survive the first few years at the bottom of the pay scale. How many pro athletes are going to leave sports for another profession that will pay them better? How many athletes worry that there aren't enough youngsters out there who want to join their ranks, and that the quality of the games will be hurt because prospective athletes are opting for a more lucrative jobs like driving a bus?
So, treating a teacher's salary as an incentive misses the mark, because the forces that motivate teachers are not financial. Rather than an incentive, it becomes a threat to their livelihood. It is not threatening their lavish lifestyle, it is threatening their ability to feed, clothe, and house themselves and their children. It becomes an incentive not to do a better job, but to do a different job -- preferably one where you aren't required to spend your days with your head on a wooden block under a masked man holding a big axe.
Remember that I said there were two reasons I could think of to institue a merit based pay system for teachers? The second reason (and, in my opinion, more likely) is that it's a way to save money. I really doubt that the proposals that come out will entail adding a bunch of money to the state budget for teacher's salaries. What will happen is that the same amount of money (or less, when adjusted for inflation) will be allocated, and redistributed to teachers on the basis of merit. Therefore, some teachers will get a pay cut, and a few might actually get a little more money. Of course, it will cost money to pay for the new bureaucracy that such a program would entail, and that money will probably come out of the pool, too, leaving less for teacher salaries. The beauty is, if an individual teacher's salary doesn't keep up with inflation, it's easy to say that it has to do with their merit, not with a lack of funding for teacher's salary in the budget. With an arbitrary scale to base salary on, it's hard to keep track of the big picture.
For all the talk in political circles of children being our greatest natural resource and leaving no child behind, the numbers tell a different story. CEOs like Carly and other super-wealthy Americans are getting huge chunks of the budget in the form of tax cuts (did I mention that half of Carly's 42 million is in the form of stock options, the dividends of which are taxed at a much lower rate as per W's tax plan? Convenient, no?), while children and their schools get less and less. I wonder if teacher's asked to resign because of low "merit" are going to get tax breaks, stock options, or any sort of severance package at all. I doubt it.
Later, I'll write about what the heck they mean by "merit" when it comes to teacher performance. It ain't pretty, I'll tell you that right now.

- "Yep, that'll do it."