dailywombat

Monday, November 30, 2009

Why US Housing Collapsed

This is an interview I did with Jason Stipp of Morningstar.com based on my book "The Cul-de-Sac Syndrome:"

http://www.morningstar.com/cover/videocenter.aspx?id=317388

Sunday, November 22, 2009

An "Eye-Opening Book"

This guest blog is from "In Another Country:"

Benito Beck is quite right--President Obama does want to transform the United States with his policies. Thomas Friedman of the New York Times laments that a political system such as ours with so much special interest money blocking up the works may actually thwart our ability to solve large global issues. Unlike Beck who seems to believe in a libertarian utopia devoted to Jesus Christ, Friedman is extolling the current Chinese system with its authoritarian capitalism. We' ve been here before, folks, when people get all weak in the knees about democracy. That's why I support Eric Holder's decision to try the 9/11 perpetrators in New York City. He matter-of-factly defended the strength of our constitutional system and our ability to deal with terrorists using our own laws.

John Wasik has written an eye-opening book about Obama's Economic Plan and the Remaking of America called The Audacity of Help. ( 2009, Bloomberg Press) Anyone watching the health care debate might sympathize with Tom Friedman's remarks since the financial forces aligned against making any reforms have been awesome. In his book Wasik outlines the basic assumptions of Obama's economic plan and analyzes what has been promised and what Congress has or has not delivered. His previous work The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream gives you some idea where he comes from. He has a keen eye of what Obama was and is trying to do with the Stimulus Plan and notes the pitfalls in stimulating a bottom-up financial recovery but sees there are not alot of alternatives.The most rewarding sections of his book concern the making of a Green, Digital Economy and the initial seed money the Administration has allotted for the development of alternative fuels and technology.

For my money, the most important speech given by President Obama was his MIT address where he outlined the transformation he envisions for the American economy. I would rank it up there with JFK's Moon speech. But that may be the problem--Obama takes a long view of our problems which he should but the short term hurt of the recession may slow if not stall the long term objectives entirely. Like Bruce Bartlett in another entry of mine, Wasik also is keen on a single-payer solution to health care, something that is off the table now. But as Wasik notes, Obama has taken on some of the most divisive issues in our political economy and contrary to his critics of the Left have stepped on alot of toes of entrenched interests. To make it to the Green Deal, Obama has to show that his stimulus package does heal the economy and help the unemployed and has made an impact on starting the transition to a more Green economy.

In a way, the whole healthcare issue is not only essential to resolve but also to build momentum for the other initiatives outlined in the book. As Wasik points out President Obama has vowed to cut the national deficit in half by the end of his term in office. While plans have been started from the first days in office to tackle this issue, President Obama will have to use his ability to explain complex problems to address frontally and fully the nature of our national debt. This will lead him into the territory of the third-rail of American politics--entitlement reform.

Social Security, Medicaid and Medicare all need funding overhauls and no recent administration has even come close to addressing this urgent issue. In addition, there is no consensus solution. Not only will the tax code have to be reformed but also the Administration must develop new revenue sources to maintain these programs at the present level just as the Baby Boomers are about to swamp them. This is the Administration's Herculean task if the American dream is going to be revived at all.

The Audacity of Help is an excellent primer on the Obama Economic Plan as well as its emphasis on the needs of people in an economic system. The format of the book lends itself well to following the different aspects of the plan and what needs to be done. The Economic Plan is ambitious and unfortunately it appears to be necessary in all its aspects. For those who want the President to fail, it is a challenge to them to present an alternative view of how to maintain and sustain the American dream.

Thursday, November 12, 2009

Merchants of Debt

This guest blog is from the Manhattan Institute's City Journal (www.city-journal.org). My Merchant of Power is referenced. It was a cautionary tale about Sam Insull, the Chicago utility baron who got swamped by overleveraged securities in 1929. More on that book at www.johnwasik.com.

Nicole Gelinas

The Bear Truth

Criminal prosecutions won’t fix finance.

11 November 2009

Yesterday, U.S. prosecutors in Brooklyn lost their criminal case against two former managers of Bear Stearns’s internal hedge funds. But the acquittals aren’t a setback for financial markets’ health; they’re a step forward. They show that the public understands that Washington can’t fix our fragile financial markets through criminal cases. It must do so through regulatory change instead.

The case was the first important criminal trial to emerge from the global financial crisis. The feds accused the two defendants, Ralph Cioffi and Matthew Tannin, of committing criminal fraud and conspiracy in 2007. According to the charges, Cioffi and Tannin talked up their mortgage-related funds to investors while freaking out about them in private. For example, in spring 2007, according to the Wall Street Journal, Cioffi fretted to his colleague that he saw “simply no way for us to make money—ever,” even as he assuaged investors’ fears. But the government’s argument didn’t fly. After the verdict, one juror even offered explicit support for the defendants, telling the New York Post that the two men had tried to save their clients’ money, not lose it. “If this was really a fraud case, they wouldn’t have worked that hard” at trying to rescue the investments, said Aram Hong, adding that she would even invest her own money with them.

Why the sympathy for rich men in suits? Just a few years ago, jurors were happy to send former Enron CEO Jeff Skilling to the clink, possibly for the rest of his life (though the Supreme Court is hearing his appeal). The charges against Skilling weren’t so different from the charges here: he had committed crimes, the government argued, partly by putting on a brave face to the public while trying futilely to deal with sudden, massive losses on impossibly complex investments. Prosecutors must have thought that jurors would be even more willing to convict now, during the worst financial and economic crisis since the Great Depression.

Instead, the jurors rebelled—and if prosecutors had looked back to history, they wouldn’t have been surprised. Nearly eight decades ago, Samuel Insull, a Chicago utility titan, became a public face for the excesses of the twenties. As John F. Wasik has chronicled, Insull used cheap, easy money to create an impossible tower of debt securities on top of stock securities and stock securities on top of debt securities, all based on the premise of ever-mounting profits. When profits stopped rising, the tower fell and investors lost everything.

Prosecutors tried Insull three separate times and lost each case. Why? The juries decided that Insull’s failure constituted not a crime but evidence of the systemic failure of financial capitalism to regulate itself. Putting Insull behind bars wouldn’t solve anything; he had acted rationally in an irrational world. He could borrow to the extent that he did before the Depression, for example, because regulations to rein in speculative borrowing were nearly nonexistent. He could do so largely without investors knowing about the risks that he was taking because requirements to disclose such things consistently and publicly were also nonexistent.

The prosecutors’ defeat back then didn’t prove damaging to markets or to the economy. Even as prosecutors tried Insull, policymakers in Washington understood the real task: to protect the economy from the unrestrained excesses of financial markets, largely through civil, not criminal, solutions. Regulators put in place simple, uniform rules to limit speculative borrowing, so that, for example, nobody could borrow more than half of the purchase price of a stock. Regulators also required fair public disclosure of corporate risk, as well as consistent public reporting of financial markets’ activities.

This system worked well until the eighties, when financial firms and markets began to find ways around these reasonable regulations. Financial instruments like mortgage-backed securities escaped limits on borrowing, while credit-default swaps escaped limits on borrowing and disclosure. The financial world could once again get away with what Insull and others had done in the twenties: building intricate towers of limitless debt, destined to fall. The broader economy, too, became dependent on this ever-increasing debt.

But over the past two decades, Washington persistently failed to see that a financial system that escaped its limits on debt and on disclosure was growing untenable. Instead, the government saw scandals from Michael Milken to Enron not as evidence of civil regulatory breakdown but as unique criminal cases. The public went along, distracted from the real problem by high-profile villains. Consider what the Times said after Skilling’s 2006 conviction: “We hope the jury’s verdict deters other corporate kingpins from breaking the rules.”

Today, though, the public seems to understand that regulation through prosecution won’t work. In the Bear Stearns case, the jury recognized what the Insull jury saw long ago. Cioffi and Tannin weren’t criminals, but imperfect people doing their best in a world with no reasonable constraint. When the entire financial system fails, that failure isn’t any one person’s fault. It means that there’s something wrong with the system, something that can’t be locked away in a cell.

Nicole Gelinas, contributing editor to the Manhattan Institute’s City Journal, is author of the forthcoming After the Fall: Saving Capitalism From Wall Street—and Washington.

Monday, November 9, 2009

Cash for Craters

This is a blog from Bill Dahl in which he references my "Audacity of Help" and "Cul-de-Sac Syndrome."

Cash For Craters

By Bill Dahl

The Crater – or – “Hey! —We’re Down Here!”

What are the odds of your home being struck by a meteor? Has the current extraterrestrial economic crisis in the U.S. pummeled the value of your home, your neighbor, a friend, colleague or family member? When you look at what you currently owe on your home mortgage versus the current appraised value, are you in-the-hole? As you sit in your living room, do you feel as if you are treading water in the bottom of a crater, staring up at the walls of seemingly insurmountable mortgage debt that now surrounds you?

The economic meteor that has crushed the valuations of the U.S. housing market has created an incomprehensible financial crater for millions of American households. One observer writes that this phenomenon is the result of a defiance of the natural laws of the universe.[i] The mortgage holders I am referring to have the following characteristics in common:

They have conventional mortgages, backed by VA, FHA, Freddie Mac and Fannie Mae. These are conforming borrowers.
They do not have jumbo mortgages.
They do not have “sub-prime” mortgages or those with increasing rates attached to the fine print in their adjustable ARRM’s.
These homeowners are not the ones who succumbed to the no down or interest only enticements that infected the mortgage market and the U.S. economic infrastructure.
These homeowners do not have liar loan or no income documentation mortgages.
The mortgages held by these folks are for their primary personal residence. They don’t have “second homes.”
These are homeowners who used their hard earned savings as down payments.
They relied on the legitimacy of a bonafide appraisal. They relied upon the protections afforded them under a myriad of consumer, mortgage and regulatory statutes.

These are the millions of responsible U.S. homeowners who have become the innocent victims of the horrific impact the economic meteor shower has inflicted on individuals, families, neighborhoods, communities and regions throughout this country. They are the innocent bystanders who have experienced tangible, enduring, economic collateral damage by virtue of the irresponsible actions of other individuals, institutions, and government regulatory agencies. One study reveals that: “Home price declines will have their biggest impact on prime “conforming” loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac.”[ii] These loans comprise two-thirds of mortgages, and have historically been considered mortgages granted to the most creditworthy borrowers. Translation: These are the U.S. citizens for whom the system has failed.

What is the perspective of those who are living in the bottom of these craters? Consider the following:

“Today, I can’t sell my home for what I paid for it. I’m stuck. I can’t get out.”
“I didn’t do this. I’m a victim of the irresponsible actions of others.”
“By staying here, paying my mortgage and property taxes, I am subsidizing the poor judgment of others, who have walked away from their mortgage obligations.”
“Somebody keeps digging my crater deeper…I don’t even own a shovel!”
“My American dream has been shattered — by somebody else. I feel violated, angry and helpless.”
“I didn’t step into the path of this meteor. What hit the guy next door slammed me!”
“During the rest of my lifetime, there is absolutely no way I can earn enough to get out of this hole.”

Voice from one crater dweller to another, looking up at the craters edge above her: Hey! Is that Ben Bernanke up there?

Crater Dwellers – The Numbers Are Climbing

For the third quarter of 2009, foreclosure filings in the U.S. hit an all time high up 23% over the same quarter in 2008. According to the S&P/Case-Shiller Home Price Index, average home prices in the U.S. are currently at 2003 levels, based upon data from August 2009 — down approximately 30%. Studies by The Kellogg School of Management have found that when the mortgage balance due is 10% or more than the value of the home, people begin to abandon their homes. As this crater deepens, the percentages of those who walk away from their economic cavern increases. One author notes: “Not only do abandoned homes lead to higher crime rates and lower tax revenues, they are like a cancer that spreads to neighboring homes.”[iii] Deutche Bank has forecast that the number of crater dwellers in the U.S. (those with negative equity in their primary personal residence) will rise from approximately 14 million mortgage obligors as of the first quarter of 2009 to 25 million by the first quarter of 2011. Translation: 48% of all U.S. mortgages will house crater dwellers – 41% of these folks have conforming loans. Others have suggested that at the beginning of 2009, “more than half of American homeowners owed more on their homes than they owned.”[iv]

On November 6^th 2009, the U.S. unemployment rate hit 10.2% in October 2009 — the highest figure since 1983. The consumer confidence index for October 2009 revealed that the U.S. consumer outlook has become more pessimistic about business conditions, the labor market, and prospects for future earnings. Some economists believe the growth in third quarter GDP is due primarily to stimulus incentives and will likely fade throughout 2010. The U.S. Congress appears inextricably paralyzed in their collective responsibility to muster the political will to craft a meaningful solution. Translation: U.S. households dwelling within mortgage craters don’t spend money. Strategic efforts to extricate the U.S. economy from the negative inertia/drag this reality continues to exert on the prospects for a sustainable recovery of the U.S. economy must begin in earnest. Who will take the lead in this endeavor?

“The only case for an independent central bank in a democracy is that it can take a longer view and do what is in the interest of the people in ways that elected politicians cannot.”[v]

Ben…are you listening?

The Case for Cash For Craters

Wisdom from Federal Reserve Chairman Ben Bernanke:

“The biggest risk is that we don’t have the political will, that we don’t have the commitment to solve this problem, and that we just let it continue. In which case, we can’t count on recovery.”[vi]

The contribution of cash for clunkers is now history. It’s over. Approximately 690,000 vehicles were sold for $3 billion sparing 42,000 jobs in the auto industry. Remember – These consumers received money for trading in junk – clunkers worth virtually nada, zilch, zero, zip!

Newsflash America: You cannot live in your car! My Black Lab Reggie and I spent one night in mine…it’s a memory we’d both like to forget. Trust me.

Gluskin-Sheff’s Chief Economist and Strategist David Rosenberg writes: “Even though we’re probably past the worst in the business cycle and probably even in the bear market, we’re talking about something much bigger here. The largest balance sheet in the world is the U.S. household balance sheet, and it’s contracting at a record rate. — The ratio of debt to income increased from about 35% in the early 1950s to about 65% by the mid-1960s, where it more or less stayed until the late 1980s. That’s when debt started its epic rise, hitting 100% of income in 2001 and going all the way up to 133% in 2007.”[vii]

George Ackerlof and Robert J. Shiller adroitly point out:

“To understand how economies work and how we can manage them and prosper, we must pay attention to the thought patterns that animate people’s ideas and feelings, their animal spirits. We will never really understand important economic events unless we confront the fact that their causes are largely mental in nature.” [viii] They make the case for the role of confidence, hope, fear and trust in the macroeconomic mosaic. In an earlier work, Shiller points to the unequivocal importance of the human imagination, social psychology, a sense of fairness, and the deleterious effects of resentment.[ix] The field is now referred to as behavioral economics. It is the emotional, mental and attitudinal composition of people within a culture that has now garnered the focal point for research in this arena. Why? Because the assumptions that has guided economics over the last several decades that markets and economies are rational, efficient, self-correcting, people/investors/traders/homeowners are reasonable – and that the risks are quantifiable, predictable, and that tomorrow can be inferred from yesterday — is under siege. We have learned that “uncertainty, as opposed to risk, is an indefinite condition, one that does not conform to numerical straitjackets.”[x] Translation: Economics is a social science, just like sociology or psychology or political science. It involves much of human behavior and the human condition that we cannot continue to pretend to understand. There are people; moms and dads, children, teenagers, young adults, students, bread winners, seniors, entrepreneurs, business owners, families, neighborhoods, communities, regions across this nation — treading water in the depths of these mortgage craters. The precariousness of the ongoing uncertainty currently experienced by this segment of the U.S. economy need not become an indefinite condition. The strategic plan for U.S. economic recovery must address this fiasco, or run the risk of allowing millions of impaired U.S. consumers to become casualties of exhaustion and subsequent drowning — the avoidable fate of those who are left to tread water without the resolve of passersby to come to their rescue.

The Lifeline:

The current economic crisis has prompted many to scurry to seek guidance from the economic history of this nation, particularly The Great Depression. Of course, the distinct differences between the structural complexities of the economic infrastructure during the Depression era versus today provide a convenient backdrop to rationalize away the pertinent lessons that might serve to inform our thinking today. Some have suggested that we are somehow more advanced and learned today – therefore immune to the miscalculations that contributed to the human misery suffered by millions during the Depression. Others carelessly take the position that this too shall pass. Finally, there appear to be loud voices shouting in the chambers of the U.S. Congress that we have already done too much. Yet, there is one parallel from the Depression that is particularly poignant as it pertains to the U.S. economic crisis today:

“The Great Depression was not some act of God or the result of some deep-rooted contradictions of capitalism but the direct result of a series of misjudgments by economic policy makers, some made back in the 1920’s, others after the crisis set in – by any measure the most dramatic sequence of collective blunders ever made by financial officials…authority at the Fed shifted to a group of inexperienced and ill-informed timeservers, who believed the economy would return to an even keel (emphasis is mine).”[xi]

Translation: The duly empowered failed to act as aggressively and deliberately as the reality demanded.

As Roger Lowenstein has said; Finance is poetically just; it punishes the reckless with special fervor.”[xii] Well, that’s a half-truth – particularly when the reckless wreak indisputable financial and emotional havoc on a broad segment of a strategically essential component the U.S. economic landscape. To paraphrase an oft-quoted utterance of economist John Maynard Keynes, markets can remain irrational longer than you can remain solvent. Unfortunately, this insight reflects the conundrum that millions of U.S. homeowners currently find themselves in. It’s difficult to hear the voices of those mired in the depths of a crater. Yet, we cannot continue to wander by this reality, reluctant to move toward those who remain trapped in the darkness beneath the collapse of our economic infrastructure, ignoring the necessity to move toward their cries for help. We must embrace the responsibility and become those “who are willing to open their eyes and assess the facts in the cold light of day.”[xiii]

A recent New York Times editorial has suggested, “We know that more stimulus spending and government programs are a fraught topic. But they are exactly what the country needs. It may be the only way to prevent a renewed downturn.”[xiv] The purpose of this article is to illustrate the moral imperative and economic necessity to include this impaired class of U.S. homeowners in the lifeline that has yet to be extended.

Former President Theodore Roosevelt captures the essence of the opportunity that currently awaits our embrace when he wrote:

“Until we put honor and duty first, and are willing to risk something to achieve righteousness both for ourselves and for others, we shall accomplish nothing: and we shall earn and deserve the contempt of the strong nations of mankind.”[xv]

Voice from the bottom of the crater:

“Hey! — Ben! Tim! Larry! — Sheila! — Somebody throw us a rope would ya?”

…Ben?…Tim?…Larry?…Sheila?

NOTES

[i] McDonald, Lawrence G. with Robinson , Patrick A Colossal Failure of Common Sense – The Inside Story of the Collapse of Lehman Brothers, Crown Business – an imprint of Crown Publishing Group, a division of Random House Inc. NY, NY Copyright © 2009 by Lawrence G. McDonald and Patrick Robinson, p. 77

[ii] http://www.reuters.com/article/businessNews/idUSTRE5745JP20090805

[v] Wessel, David In Fed We Trust – Ben Bernanke’s War on the Great Panic – How The Federal Reserve Became The Fourth Branch of Government, Crown Business – An Imprint of the Crown Publishing Group, a division of Random House, Inc. NY, NY Copyright © 2009 by David Wessel, p. 271

[vi] CBS News – 60 Minutes, March 15, 2009 An Interview With Ben Bernanke: http://www.cbsnews.com/stories/2009/03/12/60minutes/mainc4862191.shtml

[vii] http://www.gluskinsheff.com/

[viii] Akerlof, George A. and Shiller, Robert J. – Animal Spirits – How Human Psychology Drives the Economy, and Why It Matters For Global Capitalism, Princeton University Press Princeton, NJ USA and Oxford, UK Copyright © 2009 by Princeton University Press, p. 55.

[ix] Shiller, Robert J. Irrational Exuberance, Broadway Books, An imprint of Crown Publishing Group, a division of Random House, Inc. New York, New York, pp. 208, 213-215.

[xiv] New York Times – Sunday November 8, 2009 – Sunday Opinion

Thursday, October 29, 2009

Refi Now Before Rates Climb

This is my Bloomberg column on how to refinance your home mortgage:

Commentary by John F. Wasik

Oct. 29 (Bloomberg) -- If you need to refinance your home mortgages, don’t wait.

It’s not time to play chicken. Lock in the best deal now. Mortgage rates have climbed over the last two weeks, according to mortgage buyer Freddie Mac of McLean, Virginia. At a 1960s- like national average of 5 percent, the 30-year rate isn’t far from its historic low of 4.78 percent, reached in April. As the economy heats up, it’s far more likely that rates will climb.

Not only can you save every month with refinancing, over the life of the loan your total interest payments drop substantially. Increased cash flow could be the single-best excuse to refinance if your total loan expenses are reasonable.

Let’s say you have a $300,000 mortgage and you are paying $1,847 a month on a 30-year, 6.25 percent loan.

You can obtain a 5.25 percent, 30-year loan and knock down your monthly payment to $1,656, according to the Bloomberg mortgage calculator. The $2,292 annual savings would do nicely in an emergency, college or retirement fund.

If you stay in your home for 30 years, then you will save almost $69,000 in interest by refinancing. On the 6.25 percent loan, you will pay about $365,000 in interest alone -- in addition to principal.

When I got a refinancing offer letter from my bank recently, I was excited. Instead of paying 6 percent on my 30- year loan, I could refinance to 5.24 percent.

Initial Offer

My monthly payment would drop from $714 per month to $572 for annual savings of more than $1,600.

I called the bank with great hope. They also offered to waive the origination, appraisal and credit-report fee.

Upon inquiring further, it became clear that not all of the loan costs were disclosed in my cheery little letter.

Total expenses would be about $3,000 and the bank would need $750 cash upfront just for an application fee.

Of course, I could add the closing costs to the loan’s principal, which my loan specialist suggested. Since I wanted to reduce my total debt, I wasn’t happy with this option.

I was peeved at paying high closing costs, since they don’t give me a bigger equity stake and have little tangible benefit. Paying $1,000 or less to refinance a mortgage is fairer.

Besides, in an age of massive automation and bank bailouts, closing costs needn’t be that high. My bank can borrow from the Federal Reserve at less than 1 percent and has received $25 billion from taxpayers. It can afford to cut borrowers some slack. I’m shopping around for a better rate and lower costs.

When It Won’t Work

With these low rates, though, only a select group of homeowners should be refinancing.

Are you facing a job transfer or plan to move within a few years? You may not be able to recoup the closing costs or realize those huge long-term interest savings. And if you don’t have much equity in the home (less than 20 percent) or below- average credit, you may pay a higher rate or not qualify at all.

What if you plan to stay for a while?

Should you consider a 15- or 20-year loan to pay it off earlier and save on total interest?

While the rates on these mortgages would be lower, the monthly payments would be higher than 30-year notes. And there would still be those nagging closing costs.

One thing that my broker didn’t pitch was a way to pay off the loan earlier without refinancing. That would save me thousands in interest costs -- without having to pay a dime of onerous closing fees.

It’s simple: Prepay principal with every monthly payment.

Hidden Truth

You could effectively turn your existing 6.25 percent, 30- year note into a 20-year mortgage by applying an extra $350 a month to principal.

Over the life of the loan, you would save almost $140,000 in interest payments alone. Even paying an additional $208.50 would save $100,000 in total interest.

If you don’t care about building equity or paying off the loan, focus on lower payments and recouping the closing costs.

Since the Federal Reserve is subsidizing these low rates by buying as much as $1.25 trillion in securities from the government-seized mortgage entities Freddie Mac and Fannie Mae, they will not last.

Market forces, inflation or a new government policy will eventually force rates up. The Fed’s purchasing is slated to end in the first quarter of next year.

Clearly this is one situation in which patience probably isn’t a virtue.

(John F. Wasik, author of “The Audacity of Help: Obama’s Economic Plan and the Remaking of America,” is a Bloomberg News columnist. The opinions expressed are his own.)

Tuesday, October 27, 2009

Mind the Infrastructure Gap

This is a piece I wrote on how much money is needed to fix up America. It originally ran on Huffington Post.

Closing The $1.5 Trillion "Fix-Up" Gap in Obama's Economic Plan

By John F. Wasik

Let's face it. America is one giant fix-up project. Bridges are crumbling. Public transportation systems are rusting. Water mains are leaking. Getting everything repaired and modernized is perhaps the largest and most expensive "honey do" list imaginable.

As I discovered in researching my new book Audacity of Help: Obama's Economic Plan and the Remaking of America (www.audacityofhelp.net), there's a large dollar gap between what was committed in the American Recovery and Reinvestment Act and what needs to be done.

While it's undeniable that the stimulus funds are slowly trickling into communities and creating jobs -- although not enough to offset the employment lost in the past year -- the actual amount of money needed is far short of what's needed. The infrastructure repair bill is estimated to be more than $1.6 trillion, according to the American Society of Civil Engineers, which published a report card on infrastructure conditions a few weeks after Obama took office. So the stimulus plan comes up about $1.5 trillion short.

What about all of those annoying barricades you see everywhere for road construction? Crumbling or inadequate roads cost American motorists some $67 billion a year or $710 per motorist -- that's just to fix the highways and bridges. We collectively lose the equivalent of 4.2 billion hours just sitting in traffic, costing the economy about $78 billion a year in terms of lost working hours (not to mention lost family time).

Are you a conscious commuter and take public transportation? Federal spending on public transportation systems lags the amount needed by about $6 billion annually. That makes the highway repair number loom even larger since nearly half of Americans don't have access to public transportation.

You don't need to go far to notice that America's skeleton has some major osteoporosis. New York's water tunnels are leaking millions of gallons of precious water. Los Angeles can never seem to get enough of this elixir of life. Chicago's ancient "El" elevated-rail system is rusting away. Just miles from the White House, suburban Maryland's 5,500-mile system of water pipes sprang a few leaks -- more than 4,000 over the past two years (252 leaks were reported just a few days before the inauguration). Nearly every municipality has something that needs to be fixed or updated.

The Obama Administration's stimulus plan set aside about $100 billion for infrastructure improvements. Of the $48 billion for all transportation projects, $27 billion of that has been allocated to the US Department of Transportation for mostly road/highway improvements.
Here's a more detailed breakdown:

*$30 billion for electrical system improvements. This money would be divided between modernizing and creating a "smart" grid, advanced battery technology and energy-department grants.

*$29 billion for public works. This covers everything from street repairs to bridge reconstruction.

*$18 billion. More funding for public works that will cover toxic waste clean-up, municipal water systems and flood prevention.

*$8.4 billion for Public Transit. Sorely needed by cities, this will help repair and upgrade public transportation systems.

*$8 billion for High-Speed Rail. This was a long-sought down payment on creating intra-state systems to reduce the reliance on air travel.

One glaring subject that Obama avoided in the campaign and early days of his presidency is how to pay for infrastructure over time and how it will dovetail with an overall strategy to address climate change. While conservative Democrats and Republications generally object to increasing the federal deficit, they also oppose taxes. Unless huge cuts are made to other large budget items -- unlikely during a recession -- the Treasury will need to sell more notes to pay for the new spending, most likely to the Chinese, Japanese and Europeans.

At a certain point, investors in our debt may decide that the the political benefits don't outweigh the paltry after-inflation returns. No one knows when that day will come, but it will happen and may shut down the debt-financing juggernaut that's keeping the world's largest economy afloat.

There may be no way of getting around the fact that gasoline taxes (or carbon-based levies on fuel, vehicles or buildings) need to be added or raised. The 18.4-cent levy on gasoline on 24.3-cent surtax on diesel fuel has been unchanged since 1993. That brought in about $39 billion in 2007. The CBO projects an economically justifiable investment of $132 billion in highways alone. Filling this funding gap will have to involve some sacrifice and extra dollars from those using the roadways. A $44 billion kitty could be created annually by boosting the fuel tax by 25 cents a gallon. The money has to come from somewhere. Plunging the nation ever further into debt and saddling future generations with it just isn't sustainable.

A national infrastructure bank or trust fund, as proposed in the 2011 budget, could become a permanent institution overseen by trustees who are independent of Congress. This entity, if managed prudently and free of political earmarking, might be able to avoid the pork-barrel process of awarding federal dollars to the well-heeled few. Until then, the first wave of federal dollars may be a short-term boost, but won't address the long-term aging of the nation's backbone.

John F. Wasik, author of "The Audacity of Help: Obama's Economic Plan and the Remaking of America," is the author of twelve books, including "The Cul-de-Sac Syndrome" and "The Merchant of Power." He speaks widely and writes a weekly Bloomberg News column that reaches readers of five continents and which earned him the 2009 Peter Lisagor award for journalism. He lives in Chicago.

For more information please visit www.audacityofhelp.net.

Tuesday, October 13, 2009

A Recent Profile

The Daily Herald, a suburban Chicago newspaper, was kind enough to profile me:

Author John Wasik stands outside his Grayslake home with his latest books.

Paul Valade | Staff Photographer

Author John Wasik draws on his suburban roots when writing his books.

Paul Valade | Staff Photographer

Author John Wasik of Grayslake looks at writing in different ways.

"Writing a column is like a sprint, you do it in a specific period of time," he said. "But writing a book is like a marathon with writing, editing and promotion."

With more than a dozen published books, Wasik's marathon has focused on a variety of consumer and economic issues, including his latest releases: "The Audacity of Help," about President Obama's economic plan and the remaking of America, and "The Cul-De-Sac Syndrome," about the sustainability of neighborhoods during the real estate downturn.

While the former newspaper reporter has worked for various publishing houses, the latest two books were under Bloomberg Press. They are available through Amazon.com, Barnes & Noble as well as other book stores.

"In some ways, John follows in the footsteps of Jessica Mitford, especially with 'Cul-De-Sac,'" said his agent Robert Shepard of Los Angeles.

Mitford, one of the famous and politically active Mitford sisters from England, hosted author dinner meetings in San Francisco many years ago that Shepard attended. Wasik had interviewed Mitford for a story and mentioned how he was looking for an agent for his books. Before she died, Mitford connected Wasik to Shepard in the late 1990s.

Still, Wasik draws much on his suburban roots for his books and has even touched on his own neighborhood in "Cul-De-Sac." That book examines what caused the housing meltdown, how sprawl and tax breaks contributed to unaffordable homes and what could happen next.

As part of his examination, he even coined the term, "spurb," or the sprawling urban area that's not conveniently located near anything, like suburbs that seemingly spring out from the middle of a corn field, he said.

His life here has helped to guide his career, like a sprint around the suburbs.

Wasik was born in South Suburban Chicago Heights and grew up in Matteson. After he married, he and his wife, Kathleen, moved to Libertyville and then to Wauconda before settling into a home in Grayslake. They're raising two daughters: Sarah, 12 and Julia, 8.

He earned a bachelor's degree in psychology at University of Illinois-Chicago, but later decided to go into journalism. He started his reporting career at the Star Publications, a weekly chain that covers the South Suburbs. He often covered mob-related activities connected to a Chicago Heights city council, he said.

He later joined Consumer Digest magazine and produced several award-winning investigative projects involving treatment of the elderly and financial fraud. That work led him to writing a column for Bloomberg News and writing books, starting in 1987.

Since then, he has won numerous awards and appeared on NBC, NPR and PBS. He's also a regular speaker around the area. He appears regularly for promotional spots, including at 7 p.m. Wednesday, Oct. 14, at Common Ground in Deerfield, and at 7:30 p.m. Tuesday, Oct. 20, at the Schaumburg Library.

Colleagues believe Wasik has the unique ability to dissect complicated financial problems and explain them in a way that makes sense to everyone.

"I really enjoy having him as a guest on my radio shows because I know we'll have fun exploring the topic of the day and I'll wind up thinking a little differently about the issue because of a point he has raised," said Ilyce Glink of Chicago, a syndicated real estate and finance columnist and commentator.