Economics

An article at Time magazine suggests that those following the “prosperity theology” of some Pentecostal ministers are more likely than average to have obtained mortgages they cannot afford, leading to foreclosure: Has the so-called Prosperity gospel turned its followers into some of the most willing participants – and hence, victims – of the current financial crisis? That’s what a scholar of the fast-growing brand of Pentecostal Christianity believes. While researching a book on black televangelism, says Jonathan Walton, a religion professor at the University of California at Riverside, he realized that Prosperity’s central promise – that God will “make a way” for poor people to enjoy the better things in life – had developed an additional, dangerous expression during the subprime-lending boom. Walton says that this encouraged congregants who got dicey mortgages to believe “God caused the bank to ignore my credit score and blessed me with my first house.” The results, he says, “were disastrous, because they pretty much turned parishioners into prey for greedy brokers."Yet another case of religious trust being exploited to victimize those who have it. (Via Dispatches from the Culture Wars.) ...

The bailout bill has a few extra features: * Sec. 105. Energy credit for geothermal heat pump systems. * Sec. 111. Expansion and modification of advanced coal project investment credit. * Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability Trust Fund. * Sec. 115. Tax credit for carbon dioxide sequestration. * Sec. 205. Credit for new qualified plug-in electric drive motor vehicles. * Sec. 405. Increase and extension of Oil Spill Liability Trust Fund tax. * Sec. 309. Extension of economic development credit for American Samoa. * Sec. 317. Seven-year cost recovery period for motorsports racing track facility. * Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit. * Sec. 503 Exemption from excise tax for certain wooden arrows designed for use by children.It also includes tax credits for solar and wind power, a requirement that health insurance companies cover mental health the same way they cover physical health (so look for some huge premium increases on your health insurance). And during all the bailout bill discussion, Congress quietly authorized another $612 billion defense authorization bill. (Via The Agitator.) ...

Google is closing its office in Tempe, Arizona on November 21. It’s also closing offices in Denver and Dallas. Alan Eustace, SVP of Engineering & Research, writes at Google’s blog: At Google, engineering is everything - no great engineers, no life enhancing products, no happy users. So we’ve spent a lot of time structuring our engineering operations to make the most of the exceptional talent that’s available across America - developing local centers that give engineers the autonomy and opportunity to be truly innovative. These principles have served us well as we’ve grown, so when the model fails, it’s doubly disappointing. We opened our Phoenix office in 2006 and hoped that it would develop to support many of our internal engineering projects, the systems that make Google, well, Google. But we’ve found that despite everyone’s best efforts, the projects our engineers have been working on in Arizona have been, and remain, highly fragmented. So after a lot of soul searching we have decided to incorporate work on these projects into teams elsewhere at Google. We will therefore be closing our Arizona office on November 21, 2008. We’d like to thank everyone involved in this project for their energy and enthusiasm: our engineers; the engineering community in Arizona; Arizona State University; the city of Tempe; and the greater Phoenix area. We are now working with the Phoenix Googlers to transition them to other locations, or to identify other opportunities for them at Google.I’ve been expecting to see Google start cutting back on expenses in various ways, as it seems to me that their model of business, with huge per-employee expenses, isn’t sustainable for the long term. Apparently it’s also the case that it’s not cost-effective to put separate engineering centers in many locations–they probably need a critical mass of engineers and profitable projects that they didn’t get here. This is probably good news for other high-tech companies and startups in Phoenix, as those Googlers who wish to stay in the Valley become available talent. ...

McCain’s economic advisors: Doug Holtz-Eakin source Holtz-Eakin is a formerly respected academic and government economist who has been reduced to making distortionary arguments to paper over the massive deficit black hole McCain’s tax cuts would create. Arthur Laffer source Laffer is the originator of the Laffer curve, the fringe view that claims government revenue increases when tax rates are lowered. There is zero empirical evidence this is true at current tax rates. McCain has repeatedly said that he believes this foolishness, but Holtz-Eakin has said (also repeatedly) that McCain does not. Phil Gramm source Gramm is a lobbyist who was vice president of one of the investment houses most heavily implicated in the mortage industry scandal. As a senator he pushed for the banking deregulation that contributed to the current crisis. See more here. Kevin Hassett source Hassett has been widely ridiculed for writing the book Dow 36000: The New Strategy for Profiting from the Coming Rise in the Stock Market in 1999, predicting that the Dow would hit 36,000 within five years, if not sooner. Donald Luskin source Luskin has been repeatedly named the Stupidest Man Alive by Brad Delong. See here for an example. I can attest based on my own interaction with him a few years back that in addition to being not the sharpest tack in the box, he is also an extremely unpleasant person. Nancy Pfotenhauer source Pfotenhauer is a pure distilled product of Koch Industries, an oil company which funds much of the right wing message machine. See here for details. Carly Fiorina source Fiorina was spectacularly fired from her previous job as CEO of HP. According to the Times, … Republicans say Ms. Fiorina is using the McCain campaign to rebuild her image after her explosive tenure at Hewlett-Packard. They also say it is hard to see why a woman widely criticized for mismanaging one of Silicon Valley’s legendary companies is advising and representing a candidate who acknowledged last year that he did not understand the economy as well as he should. Regarding Fiorina, Jeffrey Sonnenfeld, the senior associate dean for executive programs at the Yale School of Management, says “What a blind spot this is in the McCain campaign to have elevated her stature and centrality in this way. You couldn’t pick a worse, non-imprisoned C.E.O. to be your standard-bearer.”Obama’s economic advisors: Jason Furman (director of economy policy) source bio Austan Goolsbee (senior economic policy advisor), University of Chicago tax policy expert source Wikipedia website Karen Kornbluh (policy director) source bio Wikipedia David Cutler, Harvard health policy expert source Wikipedia website Jeff Liebman, Harvard welfare expert source Wikipedia website Michael Froman, Citigroup executive source bio Daniel Tarullo, Georgetown law professor source bio David Romer, Berkeley macroeconomist source website Christina Romer, Berkeley economic historian source website Richard Thaler, University of Chicago behavioral finance expert source Wikipedia Robert Rubin, former Treasury Secretary source Wikipedia bio Larry Summers, former Treasury Secretary source Wikipedia bio Alan Blinder, former Vice-chairman of the Federal Reserve source Wikipedia bio website Jared Bernstein, Economic Policy Institute labor economist source bio James Galbraith, University of Texas macroeconomist source Wikipedia website Paul Volcker, Chairman of the Federal Reserve 1979-1987 source Wikipedia Laura Tyson, Berkeley international economist, Bill Clinton economic adviser source Wikipedia Robert Reich, Berkeley public policy professor, former Secretary of Labor source Wikipedia weblog Peter Henry, Stanford international economist source website Gene Sperling, former White House economic adviser source WikipediaMy comment on the Laffer curve–Laffer’s basic point is obviously correct, that there are points at which raising taxes further would cause revenues to decline and points where lowering taxes further would cause revenues to increase (most obviously at a 100% tax rate), but to the best of my knowledge he never did any empirical or mathematical work to show what the Laffer curve actually looks like and what factors play into it. If you don’t know the shape of the curve or where we currently fall on it, you don’t know without testing that raising taxes will reduce revenue or lowering taxes will increase revenue. Factcheck.org looks at the actual effects of some U.S. tax cuts in this regard. I do think that we can speculate that reducing U.S. corporate taxes (currently the highest in the OECD with the exception of Japan) could increase corporate tax revenue, given Ireland’s experience with just that happening. Multinational companies will do their best to book their profits in the countries with the lowest corporate tax rates, thus increasing the tax revenue in those countries. Of course, there are other factors, such as regulatory environment, cost of labor, risk of litigation, etc. ...

At Trading Markets is a story about the largest corporate bankruptcies in U.S. history, with the recent Chapter 11 filing of Lehman Brothers Holdings Inc. at the top of the list. At #9 on the list is my employer, Global Crossing Ltd., about which the article says: Hurt by a sluggish demand and declining prices for bandwidth capacity, and burdened by a heavy debt load, telecom company Global Crossing Ltd. filed for Chapter 11 bankruptcy on January 28, 2002. At the time of filing, Global Crossing had $30 billion in assets and $12 billion in debts. ...

Craig Cantoni has pointed out the following January 19, 2004 press release from the U.S. Department of Housing and Urban Development: BUSH ADMINISTRATION ANNOUNCES NEW HUD “ZERO DOWN PAYMENT” MORTGAGE Initiative Aimed at Removing Major Barrier to Homeownership LAS VEGAS - As part of President Bush’s ongoing effort to help American families achieve the dream of homeownership, Federal Housing Commissioner John C. Weicher today announced that HUD is proposing to offer a “zero down payment” mortgage, the most significant initiative by the Federal Housing Administration in over a decade. This action would help remove the greatest barrier facing first-time homebuyers - the lack of funds for a down payment on a mortgage. ...

A lot of my investments are in S&P 500 index funds, which, until the recent dive by financial institutions, included financial stocks as its largest sector of investment (finance is now third after energy and IT). Over the past couple years, I’ve held shares in the Prudent Bear Fund (BEARX), a mutual fund that uses a strategy of shorting various stocks, purchasing put options, and investing in gold, as well as making some short-term trades of the exchange-traded funds ProShares UltraShort S&P 500 (SDS), which goes up when the S&P 500 goes down, and ProShares UltraShort Financial (SKF), which goes up when the Dow Jones U.S. Financials Index (DJUSFI) goes down. I had been holding some shares of SKF for a couple weeks with a 30-day limit order to sell at $142, which would give me a nice profit. When it shot up Thursday, I upped my limit, and ended up selling some of my shares at over $150, and closing out my position. The market then reversed, and SKF dropped as low as $110, so I picked up a few more shares at around $117. Friday morning, SKF dropped to $87 and started to climb back up, when all of a sudden it stuck at $93 and no more trades went through. Trading was halted. The SEC announced a “temporary emergency action” to ban short selling in 799 stocks of financial companies for the next ten business days (until the end of the day on October 2), which may be extended for up to another twenty business days (until the end of the day on October 31, bringing us right up to the election). The UK instituted a similar ban. Because of this ban, trading in SKF was temporarily halted. The SEC seems to be under the illusion that short sellers are responsible for the stocks of financial companies falling, rather than the fact that these companies have been engaging in risky behavior and are now loaded down with bad debt. But a short time later today, trading in SKF resumed, after ProShares announced that they cannot accept orders to create new shares in the fund, since that would require taking new short positions in financial stocks, but those who hold existing positions are still permitted to trade them. This effectively turns SKF into a closed-end fund, making SKF shares more scarce than they otherwise would be. When I saw that SKF was again trading, I bought more shares at $90, reasoning that the financial problems are far from fixed, the proposed government action is likely to be full of holes, and with normal routes to short selling closed, more of those who wish to hedge their bets against further drops in the financial sector will turn to other alternatives such as put options (though options markets are likely to be hurt by this ban as well, since the U.S., unlike the UK, didn’t make an exception for options market makers) or shares in funds like SKF, the latter of which they will only be able to purchase from existing holders of the fund. It’s a serious mistake to think that short selling is something solely done by vultures trying to destroy companies at risk–it’s a defensive measure against catastrophe for those who are mostly holding long-term investment positions. An Associated Press story on the ban shows that the SEC is starting to recognize that it may cause some unintended problems: ...

As Jim pointed out here, Maricopa County saw another record month for pre-foreclosures - though AZ Central’s count is different than mine. I can only tell you what I get from the recorder’s office (which was 7286). <img style=“display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;” src="/images/08AugNTRs.jpg" border=“0” alt=““id=“BLOGGER_PHOTO_ID_5245866439526765986” />

USA Today reports that the Biden family has given $3,690 to charity over the last decade, an average of $369 per year, on “modest” income that has ranged from a low of $210,797 in 1999 to a high of over $320,000 in 2005. Last year, they gave $995 on income of $319,853 (0.3%), their highest giving rate of the decade. A 2005 study of households with incomes from $200,000 to $500,000 per year shows average charitable giving of $40,746 per year. John McCain has given $202,000 to charity in the last two years, about 25% of his income–but of course he is married to a very wealthy woman who earned more than $6 million in 2006. Last year he gave $105,467 (half of what he and his wife donated as a couple) on income of $405,409, which would be more impressive if it weren’t just an even division of their reported expenses reported without the comparison figure of her income. The Obamas gave $240,000 to charity last year on income of more than $4.2 million (5.7%). In 2000, they gave $2,350 to charity on income of $240,726 (1%). Palin’s tax data hasn’t yet been released. There may be some tax problems lurking in her records. John McCain’s personal charitable giving appears quite generous, but it’s somewhat less so considering his wife’s much higher separate income and my suspicion that she effectively subsidized his charitable giving as the chief breadwinner and provider. The Obamas were very generous last year, but not so much in 2000. The Bidens, not at all generous. This seems to lend further support to the thesis that conservatives are more generous with their own money than liberals. My feeling is that most professionals earning six-figure incomes should be able to give 5-10% of their gross income to charitable causes without much trouble. The average figures for those earning $200,000 to $500,000 strike me as just about right. (UPDATE, 17 May 2021): The Bidens’ 2020 tax returns show much more generous charitable contributions: The Bidens donated $30,704 to 10 charities last year. The largest gift was $10,000 to the Beau Biden Foundation, a nonprofit focused on child abuse that is named after the president’s deceased son.But that’s on $607,336 in income, so it’s just over 5%. Kamala Harris and Doug Emhoff gave just under 1.6%: ...

CNN reports: Foreclosures hit another record high in August: 304,000 homes were in default and 91,000 families lost their houses. More than 770,000 homes have been repossessed by lenders since August 2007, when the credit crunch took hold. The report from RealtyTrac, an online marketer of foreclosures properties, is the latest in string of bad news for housing. Foreclosure filings of all kinds, including notices of defaults, notices of auctions and bank repossessions, grew 12% in August over July, and 27% compared with August 2007. ...