Saturday, February 26, 2011

How Unions Benefit Everyone

Save the badgers! When unions go bust, middle class follows

By John F. Wasik (Reuters)
Author, The Cul-de-Sac Syndrome

Protesters listen to members of the Democratic assembly speak from a live feed in the assembly chambers on day eight of protests against the budget cuts proposed by Wisconsin Governor Scott Walker (Rep.), at the state Capitol in Madison, Wisconsin February 22, 2011. REUTERS/Darren Hauck We are all Wisconsin badgers now. If collective bargaining goes, forget about personal economic progress for middle class Americans.

The huge demonstrations in Madison, Wisconsin, over the union-busting proposal of Gov. Scott Walker have impact on us all. Ditto that for similar moves in other states like Ohio and Indiana.

There’s something deeper and more malignant in efforts to strip public employee unions of collective bargaining. They are the last bulwark of organized labor in the U.S. Corporate interests want them crushed and are using budget deficits as a sledge hammer. That’s also the rallying cry of the majority of the GOP-dominated House, which voted to de-fund the National Labor Relations Board.

It’s an age-old saga: labor vs. capital. In the case of Wisconsin, the real plot wasn’t a concerted effort to reduce a state budget deficit. The state was in the black until the Governor insisted on corporate tax cuts.

Public-sector workers are actually willing to compromise on contributing more to their retirement and healthcare. Walker’s all-or-nothing proposal wanted to eliminate their ability to collectively bargain. It was clear from his caudillo attitude that he wanted to bust the unions.

Walker’s union animus is fed by the money that flowed into his campaign coffers. The politically regressive Koch Brothers, whose companies include Georgia Pacific, donated more than $43,000 to Walker’s campaign.

The Koch Brothers’ various interests in Wisconsin also would benefit from no-bid sales of state assets, which was conveniently inserted in Walker’s “budget repair” bill. A spokesman for Koch Industries denied that the company would benefit.

A prank call further revealed the iron-fisted tactics Walker was willing to employ to crush the unions. Corporate money can be freely used as a cudgel against unions under the wretched “Citizens United” Supreme Court ruling. Business interests can donate unlimited amounts to political campaigns and pursue their anti-labor agendas unheeded.

I have a sense of what it was like before labor-backed social benefits of Social Security and Medicare didn’t exist. Old-age poverty was rampant. Maybe you didn’t go to the doctor when you left the workforce. You couldn’t afford it. Life was indeed nasty, brutish and short, to quote Thomas Hobbes.

Without unions, it’s a divide and conquer world where each of us become weak private contractors — if we can even get to the bargaining table without getting fired. Benefits will continue to erode and communities will suffer. There’s not much left to unionized America as it is — 88 percent of the workforce is not represented through collective bargaining.

Then there are the vaunted fringe benefits that most of the labor force enjoyed at one time and now are the envy of most white-collar workers chafing at puny 401(k) balances. Defined-benefit pensions used to guarantee a monthly retirement payment for the rest of your life. In 1980, two-thirds of American workers had this great coverage.

Now most Americans are scared to death they won’t have enough money in their 401(k)s, which corporate America adores because it contributes so little, loads up with excessive vendor fees and doesn’t guarantee. Employers don’t have to offer a 401(k) at all or even put money in them. Here’s your lump sum, good luck!

America was a prosperous nation under the forced savings of defined benefit plans. Now we borrow for everything, although that won’t work for retirement. Only one-in-five workers get old-style guaranteed pensions now. Most of them are in the public services or old industrial companies.

I’m not saying that given this age of diminished expectations and global competition that public employees can’t contribute more to their own health and retirement plans. They have said that they will and they understand the new reality.

But you don’t confront working people by first smashing the bargaining table and telling them they can hit the bricks if they don’t like it. That’s so 19th century and smacks of robber barony. We’ve come too far to sink into corporate feudalism.

Friday, February 18, 2011

Making Gun Ownership Safer

Why gun insurance should be mandatory

MEXICO/It’s been over a month since the Arizona shootings rocker our nation’s soul and Congress still has yet to address gun control. What gives? Egypt is no doubt at the forefront for Obama, but Congress is alarmingly quiet on the issue. Is it that a Supreme Court ruling last year and the power of the National Rifle Association are still unmovable obstacles to real reform? Only New York Mayor Michael Bloomberg seems to be beating the drum for this serious issue.

There might be a way to reduce the incidence of gun violence if viewed through the unique lens of risk management: Require both gun buyers and sellers to purchase liability insurance.

Before you get up in arms (I mean this literally) about my views on the Second Amendment, I want to be clear: I’m not against people owning guns, hunters or the right to bear them. I’ve shot guns and enjoyed skeet and target shooting enroute to becoming an Eagle Scout. My father owned guns and kept them in the house when I was growing up. He encouraged me to learn how to use pistols and rifles. I’m well schooled in gun safety.

In certain cases, though — such as a deranged adult, a teenage gang banger or a domestic violence perpetrator — guns should not be easily accessed. Unfortunately, there’s no way we can keep guns away from the most violence-prone through background checks. And we have no effective ways of gauging whether the mentally ill or substance abusers will turn violent.

Instead, the mandatory purchase of liability insurance would obey commonly accepted actuarial rules of risk-based pricing. In common English that means the people judged by objective industry research to be most likely to commit a gun crime will pay the highest premiums. What about those who use “straw buyers” or private sellers? Make all gun sellers purchase insurance.

There’s a precedent for mandatory insurance that’s hard to ignore. Nearly every state requires “dram shop” insurance for bar owners. That covers business people from the harm their patrons might do if they’ve been over-served. Everyone from corporate directors to dry cleaners buy insurance to protect themselves and the people they serve.
Insurance companies are well versed at measuring and pricing risks. They’ve been doing it for hundreds of years. Have you filled out a life or health insurance application lately? They can search credit records, detailed medical histories and get more information on you than you can imagine.

Risk-based pricing is fueled by a whole body of research that identifies who might be a victim in a gun crime or accident. Elderly people living in Florida gated communities, for example, don’t commit a whole lot of gun crimes. Far too many kids are at risk: Some 90,000 children were killed by gunfire between 1979 and 2001, according to the Children’s Defense Fund. That’s almost twice the number of soldiers killed in the Viet Nam war. In fact, American children are more at risk from firearms than any other industrialized country.


Most civilized people accept the idea of insurance in all of its forms. We know that younger drivers pay more for individual auto premiums because they have higher accident rates. Homeowners along the Atlantic coast pay more for homeowner’s coverage because they are more likely to be hit by hurricanes than those in the Midwest. You’ll pay much more for life and health insurance if you smoke or have a chronic disease.

Homeowner’s insurance pricing offers a familiar model: You get premium discounts for safety devices like smoke detectors, alarms, deadbolts and sprinklers. Under gun insurance pricing, you would get significant reductions for trigger locks, home gun safes and attending safety training classes, so most responsible gun owners would be rewarded.

If you think that the mandatory insurance idea is onerous, think again. You can’t finance a home mortgage without homeowner’s and title insurance. Want to buy a car? Most states require liability insurance. Forget about employing anyone in most states without worker’s compensation or unemployment coverage.

As it stands now, only 22 cities and two counties in California require gun dealers to buy liability insurance, according to the Legal Community Against Violence. It’s not known if any jurisdiction requires buyers to purchase liability coverage, although a state legislator in Illinois proposed such a law in 2009 (it was defeated). Note: the NRA itself currently endorses “excess liability” insurance for gun owners.

Under the insurance model, a steep premium may not only make it harder for a violence-prone individual to buy a gun, it may help society pay for the costs of gun injuries. Combined medical and legal expenses connected with gun violence are costing Americans an estimated $100 billion a year.

Will criminals still be able to get guns? Unfortunately, yes. But those unbalanced individuals seeking to buy a gun quickly though legitimate retailers will face the intense gauntlet of the insurance industry. It’s certainly not a total solution, yet it has some tangible value for society.

Photos; Top: Toy pistols handed in by residents are pictured during the “Guns Exchange Program” at a working class neighbourhood in Monterrey February 9, 2011. REUTERS/Tomas Bravo

Bottom: Weapons recovered from defendants accused of trafficking illegal firearms to Mexican drug cartels are displayed along with a .50 Caliber Machine Gun after a news conference in Phoenix, Arizona January 25, 2011. REUTERS/Joshua Lott

Monday, February 14, 2011

Why the Home Mortgage Break Needs to Go

Kill the mortgage deduction and give it to entrepreneurs

By John F. Wasik (Reuters)

This is a subject I discussed in my book The Cul-de-Sac Syndrome, which is now in paperback and ebook.

Prospective home buyer Jessica Doctoroff (C) visits a condominium for sale with her real estate agent Brenda Bremis in Medford, Massachusetts April 2, 2009.   REUTERS/Brian Snyder  Somehow I don’t think President Obama had the home-mortgage interest deduction in mind when he mentioned the U.S. tax code before the U.S. Chamber of Commerce this week.

Yet winding down and eliminating this write-off for homes would be good for business. It’s unfair, doing nothing to revive the housing market and can be put to better use shifting it to entrepreneurs to create jobs.

Most of the job creation in the U.S. economy comes from small businesses, which typically have no public shareholders to sate and are not primarily interested in fattening pay packages of overpaid executives.

The home mortgage deduction needs to go because it doesn’t make housing less expensive, either. If anything, it makes homes more expensive because the subsidy inflates prices. Most homebuyers don’t even itemize to take advantage of it. Nixing it would make homes more affordable.

As Alan Mallach, senior fellow at the Center for Community Progress, wrote in this space: “It is one of the most regressive parts of the tax code, since it affects all house prices, including the price of houses bought by lower-income home buyers, who rarely itemize and get little benefit from the deduction.”

Mallach cites one study found that “barely 10 percent of homeowners earning less than $30,000 take the deduction, but they pay higher prices for their homes to benefit more well-off homeowners. On top if this, it is projected to add $120 billion to the federal deficit next year.”

Will getting rid of the write-off deep-six the already flagging U.S. home market? Mallach noted that Italy pared its residential housing deduction in 1992 and maintains a higher home ownership rate than the U.S.

Why give a break to entrepreneurs? Won’t they squander it? True, many businesses won’t make it out of start-up mode, but those that become profitable become employment engines. Small and medium-sized enterprises account for 60 to 70 percent of most jobs in industrialized countries. Why not give those that are struggling to survive a tax break if they can create more employment?

According to Robert Litan of the Kauffman Foundation in Kansas City, between 1980 and 2005, nearly all U.S. net job creation was produced by small firms.

When President Obama exhorted corporations to spend the “$2 trillion sitting on their balance sheets” to bring down the 9-percent unemployment rate, he was preaching to a tone-deaf choir. Although they wanted to hear that the corporate income tax would be reduced — and that message was delivered — he should have talked about how he was going to help small and medium-sized businesses.

Big public corporations have long relied upon anti-social incentives when it comes to employment. They can fatten their bottom lines when they lay off people, cut benefits, take over other companies and sit on cash. The market often rewards them for doing so and executive stock options go up in value.

The White House should be studying what Singapore, Hong Kong and New Zealand are up to, which were rated as the three best places for the “ease of doing business” by the World Bank. And instead of talking before the mega-corporate club of the U.S. Chamber of Commerce, he should talk to some innovative entrepreneurs around the country.

A more socially responsible tax code needs to reward people for productive activity. Giving Americans a huge break to buy an overpriced home has already gotten millions into trouble. It’s the one part of the American Dream that has turned into a nightmare.

Monday, February 7, 2011

Investing During Turmoil

Egypt: Mummy’s curse or economic boom?

By John F. Wasik
Author, The Cul-de-Sac Syndrome

Anti-government protesters wave an Egyptian flag during a mass demonstration in Tahrir Square in Cairo February 1, 2011.   REUTERS/Yannis Behrakis Did the Egyptian rebellion open up a gold mine for civil reforms or a mummy’s tomb of economic perils?

I choose to think there are some robust opportunities presenting themselves as Egypt and other countries press their demands for freedom from oppression. On the political side, if you subscribe the “big wave” theory that Egypt’s mass protests will trigger similar revolts in other Arab states, then the resulting reforms — should they happen — may fuel prosperity and greater distribution of wealth.

The markets, of course, have a laser focus on Egypt and its ramifications. There’s a huge commodities rally going on; some of it is guided by fear and speculation but most of it is driven by demand.

I’m rooting for the Egyptians to get a better shake from their thuggish government. For a country of 83 million, most of Egypt’s wealth is concentrated at the top and little of its resource wealth is shared.

Compare the most populous country in Africa to the tiny oil-drenched Gulf State Qatar, which reported about $145,000 in GDP per capita and has one of the highest growth rates in the world at 19 percent. My source, by the way, is the U.S. Central Intelligence Agency, which apparently was behind the curve on unfolding events in the land of the Pharaohs. They weren’t watching Twitter closely enough.

As Jack Ablin, chief investment officer of Harris Private Bank, notes in his current market update, Egypt’s per-capita gross domestic product is $6,200, which even lags Tunisia’s $9,500 and most of the Arab world.

The most immediate reaction of the markets as the revolt unfolded was to sell stocks and buy U.S. Treasury Bonds, gold and energy stocks (and other commodities), which is typical. The widespread fear is that the Arab “street” will emulate Egypt and Tunisia and somehow curtail oil production in other oil-producing states. I don’t buy this idea — yet.

If you believed the panic peddlers and bought into the oil-scarcity scenario, you’d be long natural resources stocks. Just don’t focus on one region, though. Get a piece of energy growth regardless of what happens in the Middle East. Expanding economies from China to Brazil are going to demand more oil to make everything from gasoline to plastics.

Of course, if you were optimistic that Egypt is going to sort out its political crisis in a way that will economically benefit most of its people, you could bet directly on the country through the Market Vectors Egypt Index, a basket of stocks that trade on that country’s exchange. (Normally a reasonable vehicle, the ETF halted trading on Jan. 31.)

Let’s look at some other strategies:

Energy prices continue to rise no matter what happens.
I think this is a safe bet due to rising global demand in emerging economies. In that case, move into the Vanguard Energy ETF or the Rydex S&P Equal Weight Energy ETF.

Petro-energy price increases trigger more clean energy production.
This has always seemed like a reasonably good wager to me, although it’s happened in fits and starts and is a much more powerful trend in China, Japan and Europe. The Powershares Cleantech Portfolio or Van Eck Global Alternative Energy ETF are good places to start. President Obama highlighted a clean energy drive in his State of the Union speech, although he still must get any new legislation through the climate-change hostility of the GOP.

Energy prices will drop in the short term after the panic buying.
This is always a possibility when there’s blood in the streets; energy prices will drop once the protests die down. Want to be adventurous and take much more risk? Short (bet on the price falling) energy through the ProShares Ultrashort Oil & Gas ETF, which moves in the opposite direction of energy prices.

Do you want to think less and invest more? Don’t trouble yourself with which scenario may play out. These things are hard to predict.

Spread your money across all commodities through an ETF like the Powershares DB Commodity Index Tracking Fund, an efficient way to invest in a basket of in-demand goods like crude oil or zinc. Even if there isn’t more unrest and widespread hoarding, there will be growth in this sector.

Tuesday, February 1, 2011

How to Win the Debt Collection Game

When debt collectors call, hang up

By John F. Wasik (Reuters)
Author, The Cul-de-Sac Syndrome

My father was recently disturbed by some calls he was getting regarding debt collection. Why are they calling me, he wondered?

At first, he was worried because he was unsure if he had forgotten to pay a bill or had co-signed on a loan for a sibling. I told him that debt collectors can’t call you for something you don’t owe. If there was something due, they would have to send you something in writing. It was probably a scam. He ignored the calls and they stopped.

Debt harassment is a perennial problem, yet most people get intimidated when they get these calls, particularly this time of year. You have many rights, but most people don’t understand what they can do to protect themselves.

The Fair Debt Collection Practices Act is actually one of the better consumer protection laws on the books. Policed by the U.S. Federal Trade Commission (FTC), it has a number of safeguards that are designed to prevent harassment.

The FTC logged almost 120,000 debt collector complaints in 2009, which was up slightly from the previous year. Most of the inquiries involved in-house or third-party collectors, who make money on getting consumers to pony up.

You don’t have to endure abuse from collectors. Here are some of the major ways that they try to hound you and what you can do:

Outright harassment.
Nearly half of the complaints filed with the FTC involved repeated calling at odd times. Some collectors even used threats of violence. Under the debt collection act, they are not allowed to call you at inconvenient times, use obscene language or threaten you in any way. If you are being threatened, call your state attorney general’s office.

Collecting a debt that is not due.
Many collectors have the wrong information or want a payment that is overbilled. You have a right to review and challenge all claims against you, but get the written documents. Don’t do anything over the phone.

Calling your workplace.
They can’t call you at work. Again, tell them to submit any claims by mail.

Disclosing debts to third parties.
The only thing collectors are allowed to do is to use other people to locate you. They can’t discuss your debts with neighbors or family members.

Failure to send written notices.
As I mentioned earlier, they have to send you exactly what the claim is, the amount owed, to whom it is due and whether it’s been verified. Of course, you can dispute any of this information. You need the paperwork to deny their claims.

Failure to stop calling you.
Once you submit a dispute in writing, they are not supposed to call you anymore. You can also request that they “cease all communication” or refuse to pay the debt, but this won’t stop creditors from taking you to court. If you can’t pay the debt, it’s best to talk with them directly to work out a repayment plan. Bankruptcy is another option.

Still being hounded? You can cite them the law or complain to the FTC. A good guide to battling unjust debt collectors is Fred Williams’s “Fight Back Against Unfair Debt Collection Practices” (FT Press, $21.99).

Whatever you do, don’t sign up for a debt reduction or repair service. These firms will charge you money to do something you can do yourself. You can usually negotiate with creditors and don’t need a third party.
Even if you are just now going through a stack of December credit card bills as I am (yikes), what should you be looking for?

Check for unwarranted fees that are tacked on or changes in your finance rate. Were you over the limit on your charges for the month? Did the bank wrongly assess a late fee?

Keep in mind you can dispute all fees and ask that they be removed. If you don’t get satisfaction, take your business elsewhere — after you pay your bill.