Partners - Stock market, economic and political commentary by Patricia Chadwick

Caveat Victor

With their newly won power, Republicans in Congress have the opportunity to exert pressure and hopefully exact cooperation from Democrats. But they must keep in mind that the voting public is watching with a distrusting eye, and can withdraw that power in two years if it is not exercised to the advantage of their own wellbeing. Mostly that means to them more jobs, more prosperity and lower unemployment, all of which are very definable.
The factious Congress can and must pull together and reach bipartisan resolutions regarding critical issues facing the economy. The Democrats are not in the driver’s seat any more and they will be best advantaged by finding common ground with Republicans over these last few weeks of the year before they lose their majority in the House.
Newly elected Republicans seem, in many cases, to be persuaded by their victory that they have a moral obligation to carry out every detail of the ideology they believe put them in power. They are wrong. Approval ratings for Republican legislators are no higher than their Democrat colleagues, and if they assume power with an air of hubris, they do so at their own peril. There will be another accounting in just two years’ time.
President Obama made a smart political move by jumping the gun and proposing a Federal wage freeze for two years. Good politics; good economics. Republicans in Congress should reciprocate and agree to extend (yes, once again) unemployment benefits, without requiring the Government to ‘find the funding’ for it. We are still in a serious employment drought, and the vast majority of people who are unemployed do not wish to be so. Cutting off their weekly pay check is both unethical and unhelpful for the economic growth. Republicans, when they are bashing the ‘unsuccessful stimulus plan’, are hasty to point out that the ‘real’ unemployment rate is somewhere above 15% , but they seem to forget or minimize that fact when they are dealing with extending unemployment benefits. The benefits to society and the economy far outweigh the costs associated with those relatively few malingerers who want to subsist on the dole.
It somehow seems misguided to rail on about the economic evil of a tax hike for people actually employed but to ignore the economic fallout of depriving those without a wage the essential minimum level of income until they can find employment.
Which brings me to the tax hike/freeze issue. Republicans would be wise to work with the President and the Democrats in Congress to find a solution, even if that involves compromise. The other side has as much as indicated it is willing to delay any tax increases on incomes below $250,000. Republicans want more, and they are right in that regard because raising taxes will undoubtedly impede economic growth. But Republicans could well end up doing more harm than good if they are not willing to engage in some compromise on this issue. They can make the politically astute move by negotiating a higher floor than $250,000 – more like $500,000, which would incorporate the vast majority of income earners in the country. The optics matter here. It is difficult to argue that those making more than half a million dollars are not somehow in the middle class. If that is too unpalatable for Republicans, they could go one step further and raise the level to $1,000,000 before applying an incremental tax. That would benefit all but the tiniest percentage of earners.
Republicans have the opportunity to display true leadership, to engage in genuine compromise for the greater good. More than that, they have the obligation to achieve the economic results they decried their Democrat counterparts for failing to achieve. The burden is on their shoulders. They won the victory they sought and now I repeat, “Caveat victor”.


2 Responses to “Caveat Victor”

  1. Michael Colopy Says:

    Today’s Washington Post describes on page 13 a developing story of significant financial proportions that the new GOP majority in the House will be hard pressed to address. It is a scandal whose gradual emergence has the big banks petrified over what local and state law enforcement may do to address it. Cantor and Co. are quick with the populist rhetoric against all things Washington but strikingly reticent on anything substantive. If the strutting Eric Cantor and his lieutenants hope to see their legitimacy survive the next two years and their majority sustained post 2012, they have no choice but to take on the huge debacle the WP article mentions in its last four paragraphs. Patterns of political funding from the last election suggest that there are valid doubts about how happily or energetically the newly empowered conservative Members will investigate it, let along pursue the responsible miscreants.

    The word to watch for in the A-Section headlines of the coming weeks is “MERS” (Mortgage Electronic Registration Systems), in effect a private financial structure designed to supplant governmental authority and enrich the biggest players while flouting local, state and federal law.

    The central question that scrutiny of MERS addresses is this: to whom is a mortgage payment really owed?

    Today’s WP report doesn’t name MERS or explain much of what is behind the emerging scandal but the import of the last four paragraphs clearly signals that this murky by central issue is on the near horizon. And rumblings indicate that other top tier news outlets are on it.

    It will be very interesting to see what the witnesses – and the Committee Members in the Senate and the House Judiciary committee hearings today have to say about the legitimacy and behavior of MERS.

    MERS is the crux of a key question embedded in the foreclosure, what is owed to whom. As a practical matter, it has been the route by which recording fees on real estate transactions owed to local jurisdictions were skipped en mass. When cash-strapped state and local governments realize the scale of revenue legally owed to them that has been finessed into private coffers, it will be Katy-bar-the-door.

    The smart money says that the nub of the deception will be revealed through systematic examination of MERS in the coming weeks — and then the next phase of the musical chairs housing dance will begin in earnest.

    Here’s the slim reference in today’s WP:

    “Another issue that is likely to be raised this week on Capitol Hill is whether banks in many cases are trying to foreclose on borrowers when they lack the legal standing to do so. Besides Dodd’s committee hearing, a separate hearing on the foreclosure debacle is being held Thursday by the House Judiciary Committee.

    Doubts about the legal standing of banks are being raised amid allegations that they did not properly transfer paperwork proving the ownership of mortgages as they repeatedly traded the loans to investors.

    “In a case in New Jersey, for instance, a Bank of America executive, Linda DeMartini, testified that it was customary for the big lender Countrywide to hold on to the ownership documents even after the loans were pooled together, turned into securities and traded around the world. Bank of America bought Countrywide in 2008.

    “In a Nov. 16 decision that alarmed the mortgage industry, Chief Judge Judith H. Wizmur of U.S. Bankruptcy Court in Camden, N.J., denied a foreclosure against a homeowner based on Countrywide’s failure to pass the documents to the proper party….”

  2. pwalsh Says:

    I want you to know that I have forwarded your blog, and specifically your paragraphs on unemployment and the tax hike/freeze issues, to my Senators in Washington – one a Republican and one a Democrat. I whole-heartedly agree that the floor should be raised to $500,000, and let’s see if the Republicans will agree to that. Both Democrats and Republicans have to find a meeting place, and they must keep in mind their constituents who are suffering. The Republicans talk about creating jobs; how long will it be before those jobs are created? Meanwhile they have denied millions of people benefits to feed their children, pay their rents, keep their families warm this winter. How are these people supposed to survive without any income? I equate the members of Congress, who have denied the extension of benefits, to bullies who kick and stomp on you when you’re lying helpless on the ground. As you said, IT IS UNETHICAL!! I suggest that members of Congress forfeit their salaries till this crisis has been resolved. Maybe that would be an incentive to them to work a little harder to find solutions to help the struggling people who elected them.