The Swarm

If you want to make sense of the roots of the economic crisis and the giant, still unaddressed issue of housing, see the Nov. 13 testimony of Susan Wachter of the Wharton School at the University of Pennsylvania before the U.S. Senate Committee on Banking, Housing and Urban Affairs (she's at 65:47 minutes into the hearing). You can also read her testimony:

Early in the 1990 decade, nonprime lending was insignificant; by 2006 nonprime lending constituted 47 percent of mortgage originations.  The unprecedented expansion of poorly underwritten credit induced and supported a U.S. housing asset bubble beginning in 2003...

And, she continues,

This weakening of lending standards, coupled with increased production, resulted in mortgages which were structured to fail, even in the absence of intent or fraud.  However, fraudulent lending also did increase.  Eventually, this process became unsustainable, price increases halted, and the poorly underwritten loans could not be rescued by high and ever-increasing prices.  This led to today's system breakdown.

The roots of the economic downturn are in housing, so solutions need to be focused there:

Even with the efforts to solve our banking liquidity problems, we will not solve the prevailing problem if the housing downturn continues and the house market decline shows no sign of abating.  Moreover, despite bank recapitalization and rescue efforts, economically rational loan modifications that would help stabilize the market are not occurring.

So while housing prices need to fall to some real value level, the danger now is price declines that are too big:

Since their peak in 2006, housing values have fallen over 20 percent so far.  While another 10 percent fall brings the index to 2003 levels, price declines may far exceed this decline...

The solution is loan modifications.  Yet they are not happening

...at the scale necessary in order to assure a market turnaround at fundamental levels instead of a severe overcorrection.

She concludes that:

Voluntary efforts are not working.  The rules of the game need to change.

Are members of Congress and members of the California Legislature listening?

If you want to see why the Big Three face such a daunting financial picture, consider the following:

According to the United Auto Workers, General Motors, Ford and Chrysler in 2007 had 180,681 active workers that received salaries and benefits.  Yet the Big Three also paid health benefits for 640,344 retirees and surviving spouses.

Put another way, 75 percent of the people receiving health benefits are not active workers who are on the payroll producing cars. Ouch.

Continue reading to see the distribution of wages and benefits.

Here's a great exercise.  In the Minnesota U.S. Senate race, the two candidates came out of the election separated only by 215 votes out of more than 3 million cast. The state is now doing a required recount.

Minnesota Public Radio has a great exercise up on its Web site, showing 11 challenged ballots and asking readers to make their call if they were the election judge on how each ballot should go.

Speaker Karen Bass has weighed in on the Proposition 8 controversy regarding the CNN exit poll showing that 70 percent of African-Americans voted "yes." (See the article in The Bee: Assembly Speaker Bass assails anger directed at blacks after Prop. 8 vote)  David Mixner, a gay political strategist who writes from upstate New York, has an interesting perspective questioning the exit poll and the potential to build a coalition:

Dr. Fernando Guerra of Loyola's Levy Center for the Study of Los Angeles did a far more extensive poll than CNN and found that the 70 percent figure was way too high. The figure is closer to 57 percent (still not acceptable) but a long way from the 70 percent. Other models that I have been running in an attempt to get the facts and not the emotions show the latter a more likely figure.

The other data that appears to be emerging (BUT yet to be totally verified) is that African-Americans who early voted (which was a huge number) voted YES while those on election day voted NO. Remember we did not do extensive campaigning in many of the African-American precincts until the final week or so which was long after tens of thousands had already voted. Our campaign was slow to use Obama's opposition to Proposition 8 which he gave the day after the initiative qualified five months before the election.

Now historically, the African-American community has been our strongest ally. I have been working in LGBT rights since 1976 and no other community has consistently supported us like the African-American community. In two huge past initiative battles that we won statewide in California, No on 6 and No on 64, the African-American community gave us some of our largest margins. Leaders like Mayor Willie Brown, Congresswoman Maxine Waters, deceased Congressman Julian Dixon and others too numerous to mention often were the first to speak up if our oppressors were coming after us. We have a long valuable historical and powerful coalition with the African-American community and I would hate to see us do damage to it in our passion.

 

Hat tip to Calitics.com.

The State Water Resources Control Board will decide at its Dec. 2 meeting whether to revoke state water permits for the languishing Auburn Dam Project. The public has until noon on Thursday, Nov. 20 to make comments (commentletters@waterboards.ca.gov).

Newly re-elected Congressman Dan Lungren, R-Gold River, was on MSNBC today talking about his challenge to unseat Rep. John Boehner, R-Ohio, as House Minority Leader.  The vote in the Republican caucus takes place tomorrow. 

The clip begins with an exchange on Republican opposition to a bailout of the auto industry.

I would describe it as a situation that is made for the laws that already exist. The bankruptcy laws in the United States, some of which I helped write over the years, provide exactly for this type of situation where reorganization is in the offing and where you attempt to try and reorganize so the company has the best chance of surviving in the new environment. That means that everything's on the table. Including the collective bargaining agreements that would not be on the table if Congress came in with a taxpayer bailout. That is a prescription for disaster. It will leave us with more jobs lost in the long run and frankly, will make us less competitive. 

Then moves on to the race for House Minority Leader:

Update: House Minority Leader John Boehner (R-Ohio) sends along the following message on Lungren, signalling that this will be a battle among gentlemen: "Dan Lungren is a respected member of our conference and a man deeply committed to the principles that have defined our party since the beginning."

Re-elected U.S. Rep. Dan Lungren, R-Gold River, has officially announced that he will mount a challenge to displace Minority Leader John Boehner (R-Ohio) in the aftermath of two straight election losses for Republicans.  The Republicans lost 28 seats last Tuesday and no incumbent Democratic House member was defeated anywhere.

            J. Clark Kelso, the California Prison Health Care Receiver appointed by U.S. District Judge Thelton Henderson, will be visiting with The Bee's editorial board on Monday.

            What questions do you think we should ask him?

Some background: With increasingly long prison sentences, California prisons are overcrowded and housing more and more prisoners who are old, sick or dying.

Yet the California prison system has no long-term care beds for prisoners with chronic medical conditions or ongoing physical needs. These inmates (visualize a 63-year-old with a walker or wheelchair taking Alzheimer's medication) are taking up scarce prison beds needed for other prisoners. Currently the prison system has only 800 short-term care medical beds.

The state has known for some time that it needs to build 5,000 prison medical beds and 5,000 prison mental health beds within 10 years for chronically ill, physically impaired, feeble prisoners.

Kelso proposed building seven freestanding, independently managed facilities of roughly 1,500 beds each at existing prisons or on state-owned land. To build these, the Legislature considered a $6.9 billion bond package, but it was killed by Senate Republicans.

The federal courts have been waiting 13 years for California to bring its prison health-care system up to constitutional standards. So when the bond package failed, Kelso asked Judge Henderson to force the state to turn over the money to carry out his duties. The amount is $8 billion from 2008 to 2013.

For those following the $700 billion rescue package and disbursements of the first $350 billion, ProPublica.org has a preliminary tally of the U.S. Treasury's purchases of bank stocks.

The bulk of the cash has gone to nine of the largest U.S. financial institutions that account for about 55 percent of all U.S. banking assets:

Citigroup, JPMorgan, Bank of America and Wells Fargo each get $25 billion.

Morgan Stanley and Goldman get $10 billion.

Bank of New York Mellon Corp. gets about $3 billion.

State Street Corp. gets about $2 billion.

The U.S. Treasury itself has not released a bank-by-bank tally, only total numbers, something that has to change.  Congress should insist on a public tally by individual bank.

John Bresnahan at Politico.com has a nice profile on House Speaker Nancy Pelosi:

As Pelosi enters her third year as speaker, by any measure, she has become the most powerful woman in U.S. political history and is now preparing to wield her gavel in a way that few, if any, recent speakers could match. Even former Speaker Newt Gingrich of Georgia, the architect of the 1994 Republican Revolution, pales in comparison. Pelosi is being mentioned by observers in the same breath as the legendary Sam Rayburn and Tip O'Neill, although she has yet to assemble a legislative record to match theirs.

Former House Majority Leader Tom DeLay (R-Texas), no fan of Pelosi, said during a recent MSNBC appearance that she is "the most powerful speaker in a generation -- she will be able to do anything she wants."

Rep. George Miller (D-Calif.), chairman of the Education and Workforce Committee and Pelosi's closest friend in the House, likens her to a top athlete, one who has "downfield vision, who can see everything on the field at once."

Coming out of the gate with a new Democratic president and a larger Democratic majority in the Senate, she's been around long enough and is savvy enough to avoid small issues and narrow partisan agendas.  She's seen the pitfalls of overweaning majorities and been in the political wilderness. She's got to quickly tackle big issues that will build a sense of common purpose among Americans across partisan lines.

Here's something everybody should be able to agree on regarding California's current budget crisis in the midst of a major economic downturn:  Any option will hurt.

State spending reductions will hurt.

Tax increases will hurt.

Everybody also ought to be able to agree that the need right now is for spending in the economy. 

For lawmakers during the special session, decisions must boil down to: Which of the two options - spending cuts or tax increases - does the least to curtail spending by families?

Put another way, the question is: How to balance the state budget with the least possible harm to the already weakened economy?

Read on for possible solutions...

Comerica Bank's Auto Affordability Index shows the cost of a car in terms of how many weeks of income it takes to pay for it:

The purchase of an average-priced new vehicle took 24.1 weeks of median family income in the third quarter, according to the Auto Affordability Index compiled by Comerica Bank.

However, Mark J. Perry of the University of Michigan points out in his Carpe Diem: Economics and Finance blog:

Compared to the 1980s and 1990s, new vehicles are about 17% more affordable today and can be purchased with about 5 fewer weeks of income; and compared to the peak in 1995, new cars are almost 26% more affordable and can be purchased with almost 8 fewer weeks of income.

Perry suggests that this may be part of the current problem of the auto industry. As cars have become more affordable relative to income, "In an increasingly competitive industry, the inefficiencies of the Big Three and the UAW have become increasingly exposed, and the inefficiencies have become greater and greater liabilities."

Plausible?  What do you think?

Gov. Arnold Schwarzenegger told the editorial board of The Bee on Monday that California is set to run out of cash as early as February, and is having difficulty selling bonds to raise cash.  He told us that the state has only sold part of the bonds needed and has $2 billion to go.

So now we learn from ProPublica and the Los Angeles Times that "Goldman Sachs Urged Bets Against California Bonds It Helped Sell," which could cost California taxpayers.

The investment firm collected millions of dollars in fees for bringing California bonds to market and finding buyers. At the same time it was marketing a financial instrument known as a "credit default swap," where investors bet on a price decline for California bonds.

Stateline.org has a roundup of interesting landmarks in the states.  Here are two:

It wasn't borrowers or government that were pushing lenders into making higher-cost, exotic, risky mortgages.  It was the lure of profit.

Anyone who doubts that should read a recent column by Gretchen Morgenson in the New York Times.

She tells the tale of a senior mortgage underwriter at Washington Mutual (WaMu) who, like many others at WaMu, was put under tremendous pressure to approve higher-cost, exotic loans because brokers and the lender would make more money that way. Questionable loans were pushed through because they were more profitable to the company:

"At WaMu it wasn't about the quality of the loans; it was about the numbers," Ms. Cooper says. "They didn't care if we were giving loans to people that didn't qualify.  Instead, it was how many loans did you guys close and fund?"

How much would they get?

Hidden fees meant brokers could easily make between $20,000 and $40,000 on a $500,000 loan.

This is what happens when neither brokers nor lenders have an incentive to see that a borrower can actually afford a loan.  In the current Wild West climate, brokers get their fee no matter what -- and a higher fee if they steer borrowers to a higher-cost loan.  Lenders sold their loans to Wall Street firms, who then packaged them to sell to investors. 

WaMu, of course, is one the banks that failed and was seized by federal regulators.  It was sold to JPMorgan Chase, which is now trying to clean up the mess by modifying many adjustable rate loans to more stable fixed rate loans -- instead of incurring the cost of foreclosure.

Bill Durston a Democrat who has now run twice against Republican Dan Lungren for the seat in Congressional District 3, has announced he's running again in 2010.

After losing by 5 percentage points last Tuesday, writes Durston, "We have decided, though, that with your support, I will run for Congress again in 2010.  I will update you on plans for the 2010 campaign in the near future." 

Durston's early move could prevent other Democrats from jumping into the race in a district where the Republican incumbent would be vulnerable with a strong challenge.

With all the attention on Proposition 8, banning same-sex marriage, it's refreshing to see that someone has noticed the passage of Proposition 9.

Leave it to a Brit to clearly express its insidious effect.

Mary Beard, a professor of classics at Cambridge University and classics editor of the Times Literary Supplement writes:

Even worse in my view, was the passing of Proposition 9, a Victims Rights Initiative (paradoxically bank-rolled by a rich Californian currently indicted on fraud and drugs charges).  It reduces the possibilities for prisoners' parole, adds to the vast Californian prison population and gives victims of a crime a greater voice in the judicial and punitive process.  There's something truly dreadful about this.  Sure, we should support the victims.  But one of the whole purposes of a state legal system is to break the link beween culprit and victim -- to stop punishment from being vendetta.

And a reader responded to her in the comment section:

Couldn't agree more about Prop 9.  People seem increasingly to believe that the civil and criminal court system has some role to play in their individual emotional sense of grievance.  It doesn't.  Which is not to imply that victims don't deserve sympathy, or that criminals do.  But it's precisely NOT what courts are for.  One of the great projects of civilization is, as you suggest, containing revenge.

Hat tip to Andrew Sullivan.

This race remains undecided as county registrars are still processing vote-by-mail ballots that came in on election day and provisional ballots.

But here's an interesting fact: In every county in this race, Tom McClintock (R) got fewer votes than Republican presidential candidate John McCain and Charlie Brown (D) got more votes than Democratic presidential candidate Barack Obama. That's why this race remains too close to call in this normally heavily Republican district.

Examples, based on latest counts from Secretary of State's office: 

In El Dorado County, McClintock got 36,693 votes; McCain got 40,512.  In Nevada County, McClintock got 18,589 votes; McCain got 20,899.  In Placer County, McClintock got 72,365 votes; McCain got 80,209.

In El Dorado County, Brown got 36,192 votes; Obama got 33,010.  In Nevada County, Brown got 25,125; Obama got 23,035.  In Placer County, Brown got 70,322; Obama got 64,460.

As of 10:45 a.m., this race remains virtually tied (451 votes separate the candidates). And at least 30,000 absentee ballots that were dropped off at polling places on election day remain to be counted. The margin has been shrinking as the count continues.  It may come down to which candidate had the better get-out-the-vote operation in the waning hours of voting.  In any case, we may not know the final outcome of this race for some time.

Here's the count so far:

Charlie Brown (D): 155,320 (49.9 percent)

Tom McClintock (R): 155,771 (50.1 percent)

9:20 p.m.

Area 4: Elaine Rowen v Dennis Cota

Placer County (mail ballots only): Rowen 34,886; Cota 25,719

El Dorado County (mail ballots only): Rowen 619; Cota 517

Sacramento County (57 percent of precincts in): Rowen 1,185; Cota 744

Area 7: Aaron Klein v John Vodonick

Placer County (mail ballots only): Klein 32,259; Vodonick 28,493

El Dorado County (mail ballots only): Klein 553; Vodonick 563

Sacramento County (57 percent of precincts in): Klein 1,068; Vodonick 771

9:09 p.m. Nothing yet from Butte, Lassen, Modoc and Nevada counties. 

El Dorado County (mail ballots only): Brown 18,892; McClintock 19,656

Placer County (mail ballots only): Brown 39,519; McClintock 40,166

Plumas County (mail ballots only): Brown 3,333; McClintock 3,161

Sacramento County (57 percent of precincts in): Brown 1,479; McClintock 1,748

Sierra County (100 percent in): Brown 884; McClintock 849

Total at this hour: Brown 64,107; McClintock 65,580

John McCain gave a statesmanlike, gracious concession speech, one of the best speeches he's ever delivered.

"I've always believed that America offers opportunities to all who have the industry and will to seize it.  Sen. Obama believes that, too.  But we both recognize that, though we have come a long way from the old injustices that once stained our nation's reputation and denied some Americans the full blessings of American citizenship, the memory of them still had the power to wound.  A century ago, President Theodore Roosevelt's invitation of Booker T. Washington to dine at the White House was taken as an outrage in many quarters.  America today is a world away from the cruel and frightful bigotry of that time.  There is no better evidence of this than the election of an African-American to the presidency of the United States."

"I urge all Americans who supported me to join me not just congratulating him, but offering our next president our good will and earnest effort to fine ways to come together to find the necessary compromises to bridge our differences..."

But the crowd did not like it, booing during spots.

It's clear that the Republican Party can go in two directions -- continue to fight tooth and nail or, as McCain urged, to try and work together with the new president to meet the nation's great challenges.

5:45 p.m. Democrats need nine pick ups in the U.S. Senate to have a filibuster-proof majority. The networks so far have called three Dem pick ups: Mark Warner of Virginia, Jeanne Shaheen in New Hampshire and Kay Hagan in North Carolina.

6:05 p.m. Another Dem pick up: Mark Udall of New Mexico.

9:30 p.m. Another Dem pick up: Tom Udall of Colorado.

Still waiting to hear on Alaska, Minnesota, Oregon and Georgia.

Sen. Dianne Feinstein is worried that the TV networks may call the presidential race before polls close in California. "This would be a disservice to the tens of millions of voters in the West," she said in a statement, "and I strongly urge the networks to delay any precipitous announcements until voters have had their full opportunity to vote."

She's worried that many Californians might not vote if the presidential race is called, which could affect important measures such as Proposition 8 (which would change the California Constitution to eliminate same-sex marriage), plus local and congressional races. "It's critical that all California voters have a say in all of these contests, including the ballot measures and contests for down-ballot offices," she said.

Here's the story of a banker who's never done door-to-door politics who found himself knocking on doors in a North Carolina housing project -- and the difference it has made in his life and on his political outlook.

David Gergen, who advised Presidents Nixon, Ford, Reagan and Clinton, isn't just looking for which candidate gets to the magic 270 electoral votes for a win on Tuesday.  He's looking beyond the campaign to governing.

So, in a column for CNN, he says what he's looking for:

With all the hassles we've seen in trying to get new voters registered properly, it's time (again) to consider a better system: automatic voter registration.  Other countries do it.  We can, too.

This would fix all kinds of problems: having third party non-profits or others out there collecting registration forms, incomplete voter rolls, inaccurate voter rolls or county offices being overwhelmed during election years.

The virtue of automatic voter registration is, as the New America Foundation has written:

"It's the best way to bring together conservatives concerned about fraud in elections and liberals concerned about low voter registration. We need a coherent system that ensures all of us can vote, but none of us can vote more than once."

Some have suggested automatic registration for anybody with a driver's license or tax record, but that still leaves some folks out.  Others have suggested automatic registration of all high school students, but that, too, leaves some people out.

A better solution is creating a unique number for each voter and maintaining a national database so each voter only has to be registered once in their lifetime, and can move from state-to-state or county-to-county without having to re-register.

Julian Bond, currently chairman of the NAACP and the first African-American to be nominated by a major party as a candidate for vice president, has a long history with voting rights.

He dismisses the recent attack on ACORN for its voter registration efforts and supposed vote fraud as an "enormous myth."  Here's why:

"Well, of course ACORN doesn't register anybody; the election officials register people.  If I go through this crowd and pick up forms, I haven't registered anybody here.  It's not until that form gets in the hands of the registration officials that it's registered.  And if they can't tell the difference between Mickey Mouse and John Smith, then you need new election officials."

He explained that what happens is that folks go into a neighborhood to register people and collect voter registration forms.  They see that Mickey Mouse has signed a form.  But the law requires that they turn the form in.  They can't just throw it away.  But ACORN does flag the form for registration officials.  For that, they get accused of turning in fraudulent forms.

 You can hear Bond's full remarks on Minnesota Public Radio.  He was speaking on the topic, "Reflections on the Lessons of 1968" at the Eugene J. McCarthy Center for Public Policy & Civic Engagement at the College of St. Benedict/St. John's University in Minnesota. At the end of the talk he took questions and was asked to comment on "vote suppression in its current form." That section begins 39 minutes into the audio and goes for nearly four minutes.

Bond noted that vote suppression used to be the province of Democrats, but is now almost exclusively the province of Republicans.