Across the Great Divide

Thrift Failure: Next Time, Pick Up the Phone, Chuck.

Sen. Chuck Schumer (D-NY) wrote letters criticizing a Pasadena thrift's lending practices and federal regulator oversight of the bank, then made them public in late June. IndyMac was shut down on Friday after depositors withdrew more than $1.3 billion following the letters' release.

The director of Office of Thrift Supervision (OTS), one of the agencies criticized, said Schumer's comments helped spur the run on deposits that pushed IndyMac into insolvency.

Sen. Schumer rejected that, saying that, while banking regulators do their work in private, lawmakers typically do theirs in public. Sen. Schumer, the head of Senate Democrats' re-election effort, threw in a political jab as well. "Clearly what was happened here was the OTS, having the second-biggest bank failure on their watch, sought to blame the messenger. In sum, it's sort of classically what this administration does. Blame the fire on the guy who called 911."

Actually, blame the stampede on the guy who shouted fire in the crowded theater.

Wealth and Taxes in Perspective.

Recently a commenter accused us lefties of being obsessed with hedge fund managers. I wouldn't call it obsessed, exactly. More that grasping the magnitude of earnings of the wealthiest among us helps provide perspective on policy and values and proportional taxation.

For example, the uproar over whether to restore Bush's tax cuts for the nation's top earners.

Today, I saw this chart from Visualizing Economics (click to enlarge) showing the pay of 2007's highest paid hedge fund managers, which makes them likely to be among the highest paid people in the world.

Because of the scale, the comparison is meaningful only in the context of the peer group, and the magnitude is fairly abstract. What would it look like, I wondered, if I put myself on there?

Or, more accurately, my household's income.

We consider ourselves extremely fortunate and comfortable compared to most Americans, and would probably pay more taxes if Obama is elected president. But not very much more, certainly not enough to affect our lifestyle. And we also sit about where people who earn less than we do would not pay more.

So just for fun, I compared us to the chart's top earner John Paulson and Philip Falcone. To be precise, I used our Minnesota taxable income, not our gross income, just because that was the first number at hand. Believe me, the difference would not be visible in this PDF graphic, which has a scale far too outsized to reproduce directly in this post.

To read the PDF chart after you open it, first scroll to the bottom, then increase the zoom until you can see a sliver of blue at the bottom. Then scroll back up to the top. Slice that little blue block down to one-fifth its size, and you'll have some idea how far the median Minnesota household income is from the top.

Then consider: as you move from the top of that itty-bitty blue block to the top of the longest one, you'll pass less than three percent of the nation's tax filers. That's right. All the consternation about Obama's tax plan, and it won't affect the incomes of at least 97 percent of American households.

Minnesota: Still a Good Place to Get Rich.

I don't much care for these Best Cities/States lists. But since they are frequently invoked to prove how Minnesotans pay too much in taxes and how companies are suckers for locating here, I try to pay attention to the rankings and methods used.

The latest is the 2008 Salary Value Index, which purports to tell us the top (and bottom) US cities for building personal net worth. It's conducted by a "leading provider of on-demand compensation and talent management solutions" which is obviously trying to generate some annual PR with its annual survey. [Which it got: h/t MSP Business Journal]

The top ten cities included No. 1 Plano, TX, No. 4 Minneapolis and No. 8 St. Paul. Plano is supposed to be a posh North Dallas suburb, but all I can recall passing through town was a prison and a crappy motel room. No. 2 Aurora, CO, only seems like it should have a prison.

The survey takes into account the usual nice stuff, like education levels, diversity of industry and cost of living, but it seems flawed by basing wealth potential on salaries, instead of things like level of real estate speculation, stock options and criminal enterprise.

Anyway, if you live here and are not rich, you have one less excuse.

If Time is Money, Then Money Becomes Time.

This has been a difficult economy for many people. The average person may be having a tough time paying the bills as wage growth has slowed, mortgage costs have adjusted and food and gasoline expenses have soared. But it is also a time when we are constantly bombarded with images of the great wealth or luxurious lifestyles of the rich and famous. These people have earned their money and have the right to display it as they wish. But do we really want to be watching?
— Ross Levin, "Want everything? You'll always fail," Star Tribune

Last week I spent a good deal of time walking around Interlachen Country Club where the U.S. Women's Open Championship was being played. If you're not from around here, Interlachen is the kind of place where The Graduate would get the advice about plastics.

Until 18 months ago, we belonged to another private club. At the time the championship was being planned,  my domestic pard, who served as the club's league president, got the club committed to marshal one of the holes, and we were invited back to help out. It was nice to see old friends and watch the world's best golfers up close.

But I have to say I don't miss any of it.

Being away from the golf culture as well as being far less immersed in the game reminds me how it demands a high level of self-absorption if you want to be any good. Add the private club aspect, which at our club was subordinate to the golf, and you become immersed in what may feel like a close community.

But narrow is not the same as close.

Investment adviser Levin quotes Stephen Marglin, author of The Dismal Science — How Thinking Like an Economist Undermines Community:

One of the important tasks of the 21st century is to find a better balance between the claims of self and the claims of others.

Largely, we found ourselves together in that place because we shared an interest in a game, not because we were shared an interest in the world or each other. We met some great people and made lasting friendships there, but finally decided we were devoting an enormous portion of our attention to something that didn't amount to very much — and certainly did not extend much beyond ourselves. We did not want golf to be the organizing force in our lives. We did not want to end our days in some "golf community."

Levin advises us to be more conscious of our spending choices, to step back and determine whether our spending reflects our true values. He is talking about money, but it applies to how we spend our time, too.

Friend Me, Angelo.

I give you good price.

— Universal sales pitch

Mortgage lending before the meltdown was a bazaar, with all sorts of "deals" to be found, whether you were a low-income, first-time home buyer, a stated income entrepreneur in over your head, or a U.S. Senator. And especially if you were a high-income borrower who might bring more business to the institution.

Now a few Senators and former federal officials are in the news for taking allegedly advantage of Countrywide Financial's "FOA" — "Friends of Angelo" Mozilo — VIP loan program.

Before his company's fall from grace, Mozilo looked for influence in Washington however he could get it, through campaign contributions, high-priced lobbyists and easy lending, not just to power brokers but even to financial journalists. Savings offered under the FOA program do not appear to amount to more than a few hundred or thousand dollars.

Of course not.

The "value" of a VIP program, whether it is with a bank, car dealer, union, strip club or political campaign, is to make the member feel special and expand the relationship in a way that favors the program sponsor. It's designed to increase business or profitability — either directly from the recipient or from referrals, reciprocal favors and implied endorsements.

The way things really work, if you're in a "program," have to make a request or stand in a special line, you're just a prospect with the capacity to spend marginally more than the schmucks on the other side of the rope — and the value of your privileges reflects that calculation.

Do you think Michael Jordan, Bill Clinton, Donald Trump, Tom Hanks, Elliott Richardson or Madonna are in VIP programs? That's where the real favors get handed out in America — to players who don't need them and won't ask for them.

If the Mozilo favors involved any quid pro quo, they were unethical. But given the mortgage business climate and the way things work in halls of power, this looks more like business as usual, with one player telling another one, "call my friend, he'll fix you up," the borrower gets a slightly better deal, and everyone feels a little bigger.

These so-called "highly favorable loans" to Sens. Dodd and Conrad not that special, but don't expect the Party of Business to say much about that.

Some familiar with Mozilo's practices say he made no secret of the incentives. "It was something he handed out like party favors. He was fairly forthcoming with it," said Guy Cecala, publisher of Inside Mortgage Finance Publications. "As long as I can remember, he was offering that."

Although a majority of those named in the Portfolio magazine story are Democrats, I'd be making the same point if the proportions were reversed. This story is about how money and power and advantage mingle so casually, not about outright buying of influence. Tangentially, it's about people like Jim Johnson, why Johnson had to resign as Obama's vetter of VPs, and why Obama needs to look more carefully at his "friends."

Nobody argues he's not a different kind of pol. The missing element in this picture, however, is that too much newness can begat naiveté about the way that power politics works and what makes the big players tick. It takes years of experience and listening at keyholes to fathom the underground financial and emotional connections that can control decisions made for supposedly other, more noble motives.

Of course, this kind of thing takes place among friends at all levels of society from the street corner, Kiwanis Club and church basement to the country club, yacht racing circuit and Bohemian Grove. Favor trading, special access and deals almost always come wrapped in mixed motives, not all of them bad or even consciously exercised by the parties.

But as this dealing and friendly influence peddling reach the upper strata of power, it's not just between two people who may be trying to help each other. It has a way of reaching out and touching us all.

"Look for these," a Countrywide manager wrote in a Sept. 27, 2002, e-mail, after receiving applications from Kati Marton, [former UN ambassador Richard] Holbrooke's wife. "These loans are incredibly important to Angelo and as such they are incredibly important to us."

And eventually, important to the rest of us.

A College of One.

As reader Serns commented on a previous post, the original GI Bill was a grateful nation's reward for its citizen soldiers, not a recruitment come-on. From a CBS News report:

The law, officially called the Servicemen's Readjustment Act, promised returning veterans that the government would pay the full cost of tuition and books at any public or private college or job-training program. It also provided unemployment insurance and loans to buy homes and start businesses.

By contrast, the current Montgomery GI Bill, passed in 1984, asks active duty members to accept a pay reduction of $100 per month through twelve months of military service. When they return to school, they receive $1,100 monthly for a maximum of three years of education benefits. It's an amount that doesn't come close to covering the cost of a modern college education, but it does help some veterans — if they can get through the red tape.

Two generations later, there have also been dramatic changes in the cost and delivery of higher education. Today, many active duty military personnel are being encouraged to pursue their education online through such programs as the Army's eArmyU, which provides access to scores of college programs via a single portal that also includes services and information specific to the military. It had 75,000 soldiers enrolled by the end of 2006 and has continued to grow since.

Online degree programs are offered by traditional colleges as well as for-profit schools like the University of Phoenix, Capella University and American Military University. These programs focus on adult learners who are non-traditional —and to some extent, less-prepared to succeed for a variety of reasons.

Although I haven't found numbers on the proportion of veterans and active duty military, data from eLearners.com  showed that the top ranked cities per capita for prospective online learners were:

1. Hinesville-Fort Stewart, GA
2. Fort Polk South, LA
3. Jacksonville, NC
4. Fayetteville, NC
5. Fort Leonard Wood, MO
6. St. Marys, GA
7. Oak Harbor, WA
8. Ketchikan, AK
9. Warner Robins, GA
10. Killeen-Temple-Fort Hood, TX

Among these ten cities, six serve as the home base or post for members of the United States military. "Online learning is a perfect fit for servicemen and women," said Gansler. "Thousands of members of the military are turning to online education because it offers the flexibility needed to fit their schedule."

Well, yes, but according CBS News,

veterans are much less likely to graduate from college than students who have never served in the military. The department's most recent data show just 3 percent of veterans who entered a four-year college program in 1995 graduated by 2001, compared with a 30 percent overall graduation rate.

Another reason for that gap is the military experience itself. The Pentagon sells an educational dream to recruits. In addition to promising tens of thousands of dollars for a service member's college education, recruiters promise future soldiers that they'll be able to "attend college anywhere they are based and even in the combat zone through Internet classes offered from the college they are enrolled in."

But most Iraq War veterans say that’s a promise that exists only on paper.

I'm not knocking the military here, because it is one of the world's organizations most committed to training and education. Online programs, though not for everyone, certainly best fit military realities. But they also help sell a dream of access to an education that our country really isn't supporting as it once did.

Art Changing Hands Among the Moneychangers.

The Strib has the story about the loss of a landmark St. Paul public artwork, but not the sizzle of what it looks like.

You'll have to go to Start Seeing Art's photostream (from which this image is swiped) to get a fuller sense of the monumental George Sugarman sculpture that changed hands one too many times.

First National Bank (now U.S. Bank) commissioned it, then disavowed ownership after selling the building, leaving the current owner -- a real-estate investment firm -- free to dispose of it.

The new concept for marketing the building is more historic character-driven, so...

[C]hunks of the Sugarman were hauled off this week for restoration and reinstallation in Austin, Texas. "This is just wrong, so wrong," said Christine Podas Larson, founder of Public Art St. Paul, which raised $20,000 in an unsuccessful effort to keep the work in Minnesota.

I did some work for U.S. Bank, starting in the days not long after the art buyer regime left Dodge in the early '90s. As then CEO Jack Grundhofer put it, the previous execs got lucky in the bond market, thought they were geniuses and nearly tanked the company. But not before they amassed a pretty impressive modernist art collection that was still peppered throughout lobbies and hallways of the corporate offices.

I imagine much of it has been dispersed to private collections by now.

Of course, people with more money than taste have always acquired art (and books by the yard) to signify success. In Europe, many of its great cultural treasures were privately commissioned and ultimately saved by the wealthy for the public to enjoy. It's just too bad for St. Paulites, their future enjoyment of this piece will also involve travel to another land.

How to Look Like a Dork in Norway.

Bluestem Prairie knows how this works. A blogger has an original insight, does her due diligence, reports the story first, soon has news organizations and oppo bloggers crawling all over her pages, and voila — the story shows up all kinds of places without her name attached.

Reader Hal Davis, who knows how news rooms work, sent me this link that codifies the rules for stealing stories. I  could've rewritten the post a bit and passed it on without attribution, but by breaking the Golden Rule — Media outlets can only steal outright from other media outlets that are not their direct competitors, and do not fall in their same class — I'd be admitting I wasn't The Gawker's equal.

*****

If you believe the widening wealth gap is inevitable, you are excused from having to experience any moral qualms or make apologies about being filthy rich. After all, it's about math.

“[O]n a macro level it inevitably happens that the rich get richer. And then at some level the rich get richer on a geometric basis. Jeffrey’s point is that this whole issue is—it’s just mathematics at this point. This is the nature of a successful economy. The more successful the economy is, and that would be the goal of everybody, a successful economy, the greater the discrepancy actually is.”

*****

No, this is not turning into a bike blog. It's just that bikes (or any other obsessively examined activity) can provide an analogue or provide an object lesson for everything else in the world. Case in point from Jim:

I heard some economist on NPR today saying that one sign of recession is that repair-oriented businesses tend to do well. If that's true, and if the recent business trends at HC are any indication, we are most certainly in a recession. We're neck-deep in "repairs" (our repairs tend to go far beyond simply fixing broken things), but selling bikes, especially some of the pricier models, has gotten more difficult.

*****

Okay, maybe riding the Trondheim bike lift isn't as dorky as a recumbent or a stairlift. But I'm pretty sure it's also a lot less necessary, especially on hills like this one.  [via Mississippifarian]

The Last Day, Redux.

I want to say also that this may be the last day I'm ever involved in a campaign of this kind.
— Bill Clinton in South Dakota, wrapping up his campaign

Scott McClellan's new book wasn't the only presidential "betrayal" this week, although the other one was at least once removed. In a long Vanity Fair piece, Todd S. Purdum — husband of Bill Clinton's first press secretary Dee Dee Myers — does a number on the ex-president. (Purdum states Myers was not a source for the story, which is no doubt true in the same way former presidents do not solicit lucrative business opportunities; they simply materialize of their own accord.)

The tale is not so much about the ultimately unknowable Clinton as his reflection in the people who surround him — notably some uber-rich (think private airliner, not private jet), hyper-smart, rampantly narcissistic men with intimations of mortality kept at bay by irrepressible sexual indulgence and exhibitionistic philanthropy — the-rules-don't-apply-to-me crowd, to which both Clintons so nakedly belong. Last December, Huffington Post profiled one such icky character, Jeffrey Epstein, unapologetic billionaire teen massage collector, who seems to be one of the few Clinton cohorts who isn't involved with the film industry.

It's not that the Clintons are extraordinary for attracting dodgy financiers, stock manipulators and outright fraudsters with international business connections. It's just that the Bushes show more refined judgment in whose money to take and whose jets to ride.

Though the story will no doubt get the Purdum/Myers household crossed off the Clinton Christmas card list, it will have no more impact on Clinton than McClellan's will have on President Bush. Both tell opponents what they already knew, partisans what they are ashamed to admit and presidents what they are unable to hear.

UPDATE: Bill Clinton has reacted to the story. In case you missed it, he says the story is all about Hillary.

"You know [Purdum] didn't use a single name, cite a single source in all those things he said.. It's just slimy. It's part of the national media's attempt to nail Hillary for Obama. It's the most biased press coverage in modern history. It's another way of helping Obama. They had all these people standing up in his church cheering, calling Hillary a white racist, and he didn't do anything about it. The first day he said 'Ah, well.' Because that's what they do-- he gets other people to slime her."

Bill, on the other hand, will do his own sliming, thank you.

Of Course We Love the Troops. Didn't You Get the Card?

In the midst of the worst surge in mortgage defaults in seven decades, foreclosures in U.S. towns where soldiers live are increasing at a pace almost four times the national average, according to data compiled by research firm RealtyTrac Inc. in Irvine, California. As military families like the VerSteeghs signed up for the initial lower rates and easier terms of subprime mortgages, the number of people taking out Veterans Administration loans fell to the lowest in at least 12 years.
— "Foreclosures in Military Towns Surge at Four Times U.S. Rate," Bloomberg

That's right. Military families forsake a "government program" for the private market and get shown how well that works. They enlist to get help for college, end up spending a couple tours in Iraq and, if they are lucky, come back to find college tuition costs even more because states reluctant to raise taxes are underfunding their colleges and universities.

Republicans are going to start losing the military, and no amount of flag lapel pins and "strong defense" talk can conceal the gap between mouth and money.