Author: Patrick Hill Page 15 of 18

California Attacks Middle Income Housing Crisis

On April 26, 2018

Photo: St. Vincents Housing

The California legislature has introduced a bill to make low income housing tax credits available to housing agencies for middle income housing. Assemblyman David Chu, D -San Francisco, said “During the housing crisis middle income Californians are in a very tough spot, “he noted that “They don’t qualify for low income affordable housing, but also can’t afford market rates”. It is good to see the California legislature taking action on this core issue for the middle class.

With stagnant wage increases, lack of affordable housing and rising interest rates middle income families are forced to rent instead of buying a starter home. Overall nationally the number of first time buyers in the market has dropped by two percentage points to 30 % from 32 % last month which indicates how they are getting squeezed out of the market in our recent blog of 2-20-18. The housing affordability index is at a 9 year low as well.

Add to these factors driving the lack of affordability is the inventory of starter houses is continuing to shrink as builders go for higher margin larger homes with higher prices – the average price of a home has increased year over year by 6.8 % way above the average salary increase barely reaching 2.5 %.

The following chart shows how home ownership rose during the period prior to the Great Recession but has fallen since to 1990s levels.

Source: Department of Commerce – 4/26/18

We need to have housing ownership levels back to 2003 levels before all the sub-prime mortgage programs spiked the home owner binge.

As we have observed in the past home ownership is a foundational goal for many people. Homeowners invest time and energy in a commitment to the long term improvement of our communities. Household creation boosts our economy when new home owners buy appliances, furniture, carpeting and improvement services.

We applaud the California bill but it does not go far enough. We need renewed housing funding via Fannie Mae and Freddie Mac, incentives for builders to build low cost starter homes, cities to set aside more land for housing and an end to Administration protectionist tariffs against Canada driving up the piece of lumber.

Consumer Protection Head Mulvaney Panders to PayDay Lenders

By Patrick Hill

On April 25, 2018

In Conflicts of Interest, Consumer Protection

Photo: wikipedia.org

Mick Mulvaney, the interim head of the Consumer Financial Protection Bureau (CFPB) told a group of banking executives yesterday that it was their job to persuade Congressman on policy decisions and when he was a Congressman he only talked to lobbyists who contributed to his campaign. At least he is honest about how corrupt his motivations are; he operates on ‘pay to play’ basis. He does say that constituents are top on his list when they sit out in front of his office. But, who does he listen to and represent? His first priority should be consumer protection.

Since coming to the CFPB he has called off investigations into payday lenders, limited or cancelled investigations of banks and other lenders, reduced public access to information about financial services practices and now wants to end its independent funding from the Federal Reserve (to keep Congress from meddling in it investigations).

Based on his actions, not words we know now he works for the payday lenders not consumers. He received almost $63,000 for his campaign in 2017 from the Pay Day Lender lobbying association. The Pay Day Lender group spent $4.175 million in 2014 on lobbying activity to keep its predatory practices going with limited restraints. Fourteen states have outlawed pay day lending completely while 36 states and the District of Columbia allow payday lending with some limiting the percentages charged.

Source: opensecrets.org

Payday lending markets to low income borrowers who can’t otherwise get access to a small loan, many do not have bank accounts and some are immigrants. Most do not have good credit or limited credit records so they are willing to pay 400 % or 1209 % with fees for some loans. This practice is usury at its worst. The CFPB found that 4 of 5 loans were rolling debt into larger and larger loans forcing borrowers into a position of not being able to pay back the loan. The agency fined ACE Cash Express $10 million for bullying practices forcing consumers into cycles of debt. Major banks participate in this market too as Wells Fargo offers a ‘Direct Deposit Advance’ service for 120 %.

Next steps:

Phase Out the Industry – just because these companies can do it does not mean we should make loan sharking legal. There are other answers, already 14 states figured this moral issue out.
Micro Loan Model – the micro loans offered in emerging countries like India have been quite successful, charging fair interest fees using the Internet and cell phones to keep costs low, and credit counselors to teach borrowers good credit management practices. We need to help low income people learn about responsible credit management not make them prey for companies.
Limit Lobbying Funding – Pay Day Lenders and other companies should be limited in the campaign funds they give to candidates to what citizens are limited to $2400. After all, based on the Citizens United decision if corporations are people then we should treat them like citizens not special entities.
Directors and Government Leaders Recusal – Any government official with a financial interest from the last 5 years needs to recuse himself or herself from any decision making on the matter affecting the industry.
Ethics Violation for Corruptions – any pay for play scheme even without a direct quid pro quo time frame is unethical, immoral and unjust. Any official changing government policy for an entity that they received funding from in the last 5 year should be found in violation of government ethics law, fined, released from his/her position and for severe offenses jailed.
End Lobbyist Revolving Door – 75 % of lobbyists for Pay Day Lenders end up in government jobs, this practice needs to stop, with no lobbyist working in government for 10 years. We noted how harmful this practice was in our blog on December 14th archive on the new FCC Chairman being a former cable industry lobbyist.

EU Defends Social Media User Privacy – We Should Follow

By Patrick Hill

On April 24, 2018

In Corporate Nation State, Digital Advertising, Privacy

Image: fbi.gov

The EU has been working with social media companies to comply with new regulations protecting consumer privacy on social media called the General Data Protection Regulation or GDPR. It will begin enforcement of the act in May, the commissioner leading the privacy protection effort, Vera Jourva found that both Google and Facebook were implementing software features to support the new regulation. The GDPR regulations seek to limit the actions of huge social media companies to take control of customer data in exchange for services. The regulations require that an affirmative consent be obtained before all social media companies can give access to users to their advertising clients.

Google has told website owners and app publishers they must explicitly obtain user’s consent for targeted ads or they will be cut off from the Google ad network. Facebook has placed pop pages on it European sites to invite users to affirm their receptivity to targeted ads. Their marketing clout has put small ad tech companies that work directly with site providers in bind as advertisers don’t want users hit with many consent pop ads from multiple sites. Google and Facebook make it easy and simple for digital advertisers to reach their audiences with targeted ads with one permission screen. The two social media behemoths are forcing many ad tech companies into a difficult position with their clients, and some may go out of business

Source: The Wall Street Journal – 4/23/18

Google and Facebook track the majority of web page loads for surveillance of users and targeting ads. This means they have unchecked marketing power with advertisers and users to promote their digital channels to the exclusion of other players.

Next Steps:

Frankly, the EU regulations don’t go far enough, the law should establish that users own their content and they license its use to the social media corporations for certain limited business purposes. Besides explicit consent for allowing tracking, users should be able to opt out of tracking if they want and still be able to use the service – leaving advertisers to reach users when they are only on their site. We don’t allow cable broadcasters to track their viewers (even though digitally they know who is watching) and place ads based on what channel they are watching. Targeted advertising is a form of spying on the users, and needs to stop. Google and Facebook should make their consent information available to websites that use their services to make a level playing field on ad networks as well. We need to carefully examine the business processes of these new giant companies to ensure that market rules are setup for a level playing field for all participants and further review breaking up services where undue market clout is being exercised. For example, Google has over 7 different services which 1 billion people use at least once per month. A detailed investigation should be conducted by the DOJ to evaluate the anti-trust and public good issues inherent in such market power. We note in our blog on Identity Theft that corporations need to be held accountable for securing our content and they have a fiduciary responsibility to us to safeguard our content for us as content owners.

Trade War Heats Up – China Slaps 179 % Tariff on US Sorghum

By Patrick Hill

On April 23, 2018

In Protectionism, Trade, US - China Trade

Image: asissentinel.com

Two grain ships filled with sorghum grain reversed course or headed to new destinations as China announced last week that they would require a 179 % deposit on the commodity.

Image: The Ship RB Eden Turning – Bloomberg – 4/20/18

US farmers shipped about $1 billion per year over the past two years of sorghum to China according to the Wall Street Journal. China is specifically targeting Trump states to make the point that a tit for tat trade war will end badly for US producers.

As other countries mount their own tariffs to US goods, and the US slaps tariffs on imported goods prices will go up. When prices go up, inflation increases causing interest rates to rise, which means that interest rates rise on credit cards to mortgages. Every consumer has some debt and the inflation wave will crash through the US financial system, ending the 2^nd longest economic growth period since WWII – though the economy has helped the top 20 % the most versus the 80 % in the working class.

Next steps:

As we have noted previously, business leaders are already making decisions and calculations like turning ships around. The Administration’s announcement and follow through on steel aluminum and lumber have distorted markets artificially causing increased prices and supply disruptions. Our leaders need to stop this bullying approach toward our trade partners, use international forums and work within our trade alliances to settle trade issues. Starting a trade war will cause everyone to lose money, jobs and trigger an economic downturn. The working class will be hurt the most, as they have the least amount of money saved and are usually the first to be fired in any falling economy.

At Last Some Relief On Student Debt

By Patrick Hill

On April 6, 2018

In Solution, Student Debt

image: seiu668.org

Student loan debt continues to mount as the Federal Reserve reported a major increase to $1.49 trillion in February of this year. But, a partial solution is coming.

Image: The Federal Reserve Bank, St. Louis – 2/8/18

As part of the spending bill that Congress passed last month, $350 million was allocated for a fix it forgiveness program for some types of student loans. Senator Elizabeth Warren has been surveying the issue and individuals trying to take advantage of the provisions where she found that it was quite complex, answers were in complete from the Department of Education and work still needed to be done to setup the process. She found many firefighters and teachers having a difficult time getting into the program. Prior to passage of the spending bill Senators Whitehouse and Kaine wrote a bill to setup a student debt forgiveness program and get it funded, their bill set the stage for Democrats to push for provisions of the bill to be included in the omnibus spending bill.

This solution is still not enough compared to the huge issue of $1.49 trillion outstanding placing an anchor of debt on our young people when they need to be investing in starting their families and careers and buying homes. In blog of February 16th in our archives, we review an idea to cancel all student debt. We like the idea moving forward, yet recommend that forgiveness be done in stages, by reducing interest rates, offering Heartland Service, providing a universal national service option and corporate sponsorship of an internship by the student.

Corporations Are Making Decisions Now in Midst of Trade Uncertainty

By Patrick Hill

On April 5, 2018

In Corporate Nation State, Trade

Image: mikaeldacosta.com

Our President just threw the trade dialog for a loop this afternoon requesting his trade team come up with another $100 billion in tariffs against China on top of the already $50 billion he has announced. He thinks that by starting a verbal trade war with a protracted ‘up to 6 months’ negotiation with China and other countries that the US economy will come out the winner. The winning outcome will likely never happen! Why? Because corporate leaders are already factoring in an incredibly slow negotiation. Corporations abhor uncertainty, the policy uncertainty index with this President is off the charts. Executives are making decisions on investments for the next 3 – 5 sometimes 10 years out into the future.

Source: Factset, Stanford, Northwestern, University of Chicago, The Wall Street Journal 4/4/18

Professors Baker of Northwestern, Bloom of Stanford, and Davis of University of Chicago developed an uncertainty index based on mentions of ‘certainty’ and ‘uncertainty’ in newspaper articles. With a relatively quiet economy and the first 12 months of President Trump’s administration now behind us, we expect the ‘uncertainty’ mentions to soar with trade war, stock market prices falling and cross industry conflicts about which industry should be sacrificed for another one.

The major stock indexes have fallen as much as 10 % year to date and yesterday, the Dow Jones Average was on a roller coaster down as much as 510 points then closing at 210 points up at the close. Money managers hate uncertainty too, as they need to make daily decisions in regard to investments of millions of dollars in trusted to them to grow for retirement programs, trusts, endowments and investors looking out 5 and 10 years.

The present trade war was started by our President because he said it would be ‘easy to win.’ Yet, he has little experience in complex global product and services trade. Treaties that he is ready to tear up took years to negotiate, analyze the complex trade data and gain buy in from all parties.

Executives are looking at data, researching alternatives, hiring consulting firms and looking to figure out a long term plan now – with alternatives if the trade war is won by the US or if it is lost by the US or their industry. They will make decisions based on the present level of ‘uncertainty’ and see alternatives now, not waiting to see the outcome. Business leaders cannot wait, they have businesses to run today, shareholders to report to, employees to manage, and products or services to build and sell.

In the steel sector, companies in the US are already stockpiling steel before the tariffs on imports start, spiking prices then there will be a glut of product with prices falling. Soybean farmers in the US already reeling from competition from Brazil and other countries will feel the immediate fall of sales from China, as Chinese customers seek lower cost ‘safe’ non US suppliers for products like pork. Pork futures prices that farmers use to price their hog products have already dropped 15 % in the last month and a deep spiral down of 2.58 % today. Prices are already dropping customers and suppliers are making decisions to reduce uncertainty and these decisions will cause market chaos leading to a recession or worse.

Next Step:

We need to wind down the brinksmanship now, focus on the real issues behind trade imbalances that have been developing for decades, and confront intellectual property theft on a straight on policy basis not through tariffs. We need to use the international forums like the WTO that have been carefully built over the past 50 years to ensure prosperity across the world for all economies and at the same time protect US worker jobs, incomes and future career opportunities. We have said in previous posts that the time is now to reverse direction before it is too late and the global economy is severely damaged.

Employers Not Passing Along Drug Cost Rebates

By Patrick Hill

On April 4, 2018

In Drug Pricing, Employees

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Fridays we spotlight in more depth solutions to issues we have identified. Please right click on images to see them larger in a separate tab.)

Image: Kaiser Health Network

Almost 70 % of all employers who are the payers for employee drug insurance programs do not pass along the rebates they receive from insurers who receive them from drug manufacturers. Employers say they use the funds to reduce costs. Though we do see corporations passing along the costs to employees with higher deductibles according to the Kaiser Family Foundation research report discussed in our blog on Health Insurers and keeping the rebates to themselves.

Source: Pharmacy Benefit Management Institute, The Wall Street Journal – 3/6/18

What is really happening is drug insurers like United Healthcare, are offering discounts to employers who can pass them along to employees but they don’t pass the dollars along. Instead they say they put them into reducing the costs of drugs overall. Yet, that is not happening, as a Kaiser survey found that with drug costs going up 58 % from 2006 to 2016 yet the cost of worker contributions went up 78 %. Companies are picking up a health insurance reduction premium saving it for themselves of 20 %.

When companies reduce health costs, the result is increased profits (made from increasing costs to employees), which increase the value of company stock which is held mostly by executives and shareholders who are in the top 10 % in income.

Next Steps:

We applaud that United Healthcare is going to begin offering next year direct to consumer drug rebates for a subset of their employer based programs. Yet, that not enough, we see a need for legislation calling for transparency in drug pricing and insurance similar to the laws in place on bank mortgages disclosing the real cost of a home loan. Second, we recommend legislation that requires drug insurers pass along any drug manufacturer rebates, discount or other cost savings directly to consumers to prevent the cost reductions from being syphoned off by employers.

In the end, the added layer of insurers we don’t need when we already have the Medicare program in place for 55 million Americans and 44 million of those are enrolled in Medicare Part D for drug insurance. We have one drug formulary in Medicare, let’s use it, let the Medicare administration to directly negotiate drug prices, end stock buybacks by drug companies and direct advertising of prescriptions drugs, then we would see a significant reduction in drug costs.

GOP Leadership Not Legislating the Will of the People – Environment

By Patrick Hill

On April 3, 2018

In Environment

Photo: pinterest.com

As the GOP Administration announces a rollback of car efficiency standards set by the Obama administration, the GOP leadership continues to be out of step with the will of the people. A recent poll by Gallup shows a significant shift in the attitude of Americans about the tradeoffs between the environment and the economy. Now US citizens believe that the environment is the first priority even if it reduces some economic growth.

Sources: Gallup, The Wall Street Journal, The Daily Shot – 4/3/18

The shift in concerns about the environment over the economy started in 2014 until today where an overwhelming majority 57 % of Americans say the environment is the first priority even at the risk of curbing economic growth.

Next Steps:

The environment is a non-partisan issue actually, if we don’t have clean water, air or land on our planet we won’t be able to survive here. This administration has taken giant steps backward by withdrawing from the Paris Climate Treaty, relaxing clean water standards for coal producing area streams, allowing energy and mining on protected wilderness lands, opening ocean protected areas to oil drilling and now rolling back car mileage goals. It is time for all Americans to make their will known to our elected leaders in Congress and the White House by requiring our politicians pass laws that reflect the will of the people over the short term goals of energy, mining and car manufacturers who don’t seem to care enough about our survival. We have noted the lack of scientific or intelligent policy making in the recent EPA decision to not use generally accepted research or data to make policy decisions. The EPA positions on our health, the environment and priorities to protect our people are totally one hundred and eighty degrees out of sync with the will of the people and must change – now!

China Retaliates in Trump Trade Battle

By Patrick Hill

On April 2, 2018

In Protectionism, Trade, US - China Trade

Image: asiafinancialpublishing.com

China announced yesterday they will be placing tariffs on 128 American goods for a total of $3 billion dollars in response to the Trump administration tariffs of 25 % on steel and 10 % on aluminum. The situation is posed to escalate as the President is expected to announce $60 billion of new tariffs on Chinese imports this week.

The US agriculture industry is reeling from increased competition from overseas countries like Brazil and now the administration is throwing a trade war into the mix. Farmers are perplexed as to how to navigate these new trade waters.

Source: US Department of Agriculture, The Wall Street Journal – 4/2/18

The US agriculture industry is one of the bright spots in US exports accounting for $140.5 billion in exports for 2017 according to the US Department of Agriculture. China receives about $22 billion of US exports last year in pork, and meat products. While the $3 billion in tariffs is not large it maybe just an opening round in the economic shots being fired by the US and China.

While some industry analysts look at just the dollar amounts involved we see a very disturbing trend in the tenor of the conduct of this trade conflict. This administration has distinguished itself by being bullying, intimidating, impulsive, vengeful and unpredictable – not good traits for a positive trade negotiation outcome.

Next Steps:

First, we need to understand how corporations, suppliers and customers respond to political uncertainty. Corporations either buyer or seller are seeking certainty around first of all selling their products and second at the highest price. Second, when our government starts picking winners and losers in the US economy and linking unconnected segments like sacrificing US agriculture for intellectual property theft by China from US high technology companies – then any economic shot is fair game. Just the threat of tariffs on certain goods is enough to cause customers, in this case Chinese buyers of US agriculture goods to find other lower cost suppliers. Once these buyers discover new suppliers with lower prices and similar quality they are likely not to switch back to US suppliers. Sales for US agriculture companies are likely to drop as a result.

We have said in our Insight Byte of March 6th that starting a trade war linking disconnected parts of the economy, not using international bodies like the World Trade Organization will just lead to lose – lose economics for global corporations and consumers. Lost jobs will result, economic recession or depression will spiral downward and it will take years to recover. Sound, research based trade policies based on win-win partnerships are the only way to turn this situation around. This administration has opened an economic Pandora’s box that it will not be able to close.

The Five Largest Banks Have 50 % of All Bank Assets – Let’s Break Them Up

By Patrick Hill

On March 30, 2018

In Big Five Banks, Financial Crisis

In 1990 the five largest commercial banks held just 10 % of all bank assets. Today the five largest banks control nearly 50 % of all $15.3 trillion in bank assets! These five banks virtually are our banking system: JP Morgan Chase, Bank of America, Wells Fargo, Citicorp and US Bancorp, with Wells Fargo holding the same level of assets by itself that the top 5 banks held in 1990.

Source: SNL Financial, Forbes – 12/3/14

Experts like Neil Kashkari who led the Bush Administration’s $700 billion bank bailout effort the Troubled Asset Relief Program, thinks these mega banks should be broken up. Now Kashkari is the Federal Reserve Governor for Minneapolis and has called for reducing the size of the big banks and distributing their power and control to provide a better shock absorber in the event of another banking crisis. He even calls for a 25 % capital reserve requirement many times the present capital reserve requirements the Federal Reserve has maintained in its stress test program. We have seen with the failure of Wells to protect its customers from 3.5 million fake checking accounts created by its sales staff how poorly bank management performs. Now, the bank is being investigated for improper referrals and transferring of funds in the wealth management division.

Enough is enough, our present financial system is too concentrated to effectively manage; distributing wealth, power and control back into regions is one way to ensure reasonable oversight and management can prevail. In addition, we support calls for a modern day Glass-Steagall Act to separate investment banking (were sub–prime derivatives of the Great Recession were created) and commercial banking for retail customers. We need to protect our citizens financial assets from the financial engineering and schemes of Wall Street. It is not a coincidence that today 90 % of all wealth is held by the fewest number of people since 1929. We know what happened after 1929 – we don’t need a repeat of the Great Depression.