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June 30, 2010

Analyst: hhgregg's sales force will help it thrive

Tuesday's column was about the challenges and opportunities facing hhgregg, the rapidly expanding consumer-electronics chain that recently opened six stores in metro Baltimore. Scott Tilghman, who follows the company for Hudson Square Research, emailed me after the piece was published with a few extra thoughts.

He thinks I didn't give enough emphasis to hhgregg's trained, commissioned sales force, the growing complexity of consumer electronics and hhgregg's strength in appliances such as washers and dryers. In particular, he says, a smart sales force will better help customers navigate the increasingly complicated world of TV, with its Internet and 3D options. It's probably true that Circuit City's demise was accelerated by its decision to fire its most experienced, highly paid sales folks a few years ago. hhgregg's experts will help the chain stand out over the discounters that just sell you a screen without making sure it's what you need or telling you how to hook it up to your home network, says Tilghman. He says:

We have moved from an era where products are bought to an era where they are sold. In the former, many products were self contained and relatively easy for consumers to work. In the latter, there is far more complexity resulting from product line extensions, individual product capabilities, and of course the ability to connect devices across product categories (phones to computers to TVs, etc). The expertise of a trained and tenured salesforce is far more useful to a customer than the grab and go model of a discount store, in our view.
Posted by Jay Hancock at 10:44 AM | | Comments (4)
Categories: Marketing
        

How to get out of a long-term electricity deal

Readers like me, who are locked into long-term electricity deals with Washington Gas Energy Services, report that WGES is sometimes willing to renegotiate the terms without charging the early-termination fee of $150 or more.

I locked into a multi-year deal with WGES at 10.8 cents per kilowatt hour in early 2009. Since then, however, wholesale electricity prices have continued to fall. WGES now offers BGE customers 9.7 cents for two years, which would cost a typical household about $100 a year less than the 10.8-cent contract. Of course if you have to pay the early-termination fee it wipes out the savings. However customers tell me that WGES is willing to cut the price to 10.4 cents if they extend the contract for an extra year.

The company says it isn't necessarily willing to do this for every customer. “I don’t’ want to give anybody the impression that we just blanket go out and do that for everybody," says Leah Gibbons, WGES's director of legislation and regulatory affairs. "We look at their special situations and we try to find a solution."

But it's worth a try if you think doing this would make sense for you. WGES: 1-888-884-WGES.
As for me, I'm probably going to terminate my WGES deal soon, which makes sense for our household because we signed up when the early-termination charge was only $75. I'll save more than that by switching to the 9.7-cent offer or something similar.

Posted by Jay Hancock at 8:42 AM | | Comments (4)
Categories: BGE/electricity
        

June 29, 2010

Why are vacations so much work?

More on vacations from Drake Bennett via Marginal Revolution.

They found that in all three cases, the respondents were least happy about the vacation while they were taking it. Beforehand, they looked forward to it with eager anticipation, and within a few days of returning, they remembered it fondly. But while on it, they found themselves bogged down by the disappointments and logistical headaches of actually going somewhere and doing something, and the pressure they felt to be enjoying themselves.
Posted by Jay Hancock at 4:42 PM | | Comments (1)
        

Classrooms are not Burger King

Stanley Fish continues the discussion on whether students should be able to rate their teachers, affecting teachers' pay and careers. One teacher responds in a definitive way:

“Sorry kids, you are not the authority in the classroom. Me Teacher. You student. Me Teach , you learn. End of discussion . . . Education is not a business. You are not my customer. My classroom is not Burger King. You do not get to ‘have it your way.’”
Posted by Jay Hancock at 2:16 PM | | Comments (1)
Categories: Education
        

Baltimore budget proves power of special interests

Baltimore's budget demonstrates one of democracy's well-known flaws. The squealing wheel gets the oil; the silent majority gets the shaft. Baltimore's proposed bottle tax got cut in half because a coalition of retailers and beverage distributors mustered extraordinary resources to oppose it. Newspaper ads were bought. Superlobbyists were hired. Doom was predicted.

Public choice theory teaches that democracy is often tilted to respond to the interests of the few at the expense of the many. The bottle tax would have benefited Baltimore as a whole, but in a diffuse way. Its effect on any one household (in terms of saving police jobs etc.) would have been hard to measure. So for the majority of Baltimore residents, there wasn't much incentive to strongly support the bottle tax.

However there WAS incentive for beverage sellers to oppose it. It was aimed directly at them. The threat they perceived in the bottle tax was much bigger than any possible benefit to them from balancing the city budget. So they fought hard and partly won.

Meanwhile the city passed a broad, personal-income tax increase with hardly a hint of opposition. Where was the lobbying campaign against that? Where were the newspaper ads against raising taxes on already-overtaxed Baltimoreans? Where were the counterparts to lobbyist Bruce Bereano, hovering around council members to warn them of disaster? Of course there weren't any. The body politic doesn't have lobbyists. It has elected representatives. But too often they're too busy listening to the special interests.

Posted by Jay Hancock at 8:44 AM | | Comments (16)
Categories: Taxes
        

June 28, 2010

Public pensions will be tweaked, not butchered

Yesterday's column was about the Baltimore fire & police pensions and how they are a harbinger of what Maryland's governor, whoever he is, will be dealing with next year. I disliked the headline that editors wrote for the print edition: "Too bad about those pension promises." It seemed to mock those hoping that today's state and city pension terms will last. Mocking is not my intention. My point was that everybody is dealing with diminished resources and lowered expectations in today's economy, and that members of all defined-benefit pension plans, government's included, will have to face up to that.

But don't expect public pension plans to be wiped out, by any means. Even after inevitable reforms, most government employees will have the kind of retirement benefits that private-sector employees can only wish for. It's just that contribution rates will rise, retirement ages will be pushed back, cost-of-living adjustments will be lowered and so forth.

A good analogy is Social Security, which is headed toward its second big overhaul in four decades. Most workers pay into Social Security, and most workers will have to adjust to the idea that Social Security's terms are going to change. Look for the Social Security retirement age to be pushed back and perhaps for benefits to be scaled back for high-income folks. Many Social Security members realize that present terms can't be maintained without terrible fiscal consequences or intolerable tax burdens on younger generations. But barring some barely imaginable disaster Social Security will be here and paying benefits for a long, long time.


Posted by Jay Hancock at 6:06 AM | | Comments (4)
Categories: Taxes
        

June 25, 2010

Ritholtz: Finance reform gets a C-minus

He does like one part, though!

MORTGAGE UNDERWRITING STANDARDS: Grade A

Establishes new minimum underwriting standards for mortgages. No more no doc, NINJA, or Liar loans. Lenders must verify income, credit history and job status. Would ban payments to brokers for steering borrowers to high-priced loans. Of all the regulatory changes passed today, this seems to be the only one that, if in place a decade ago, would have prevented (or at least dramatically reduced) the crisis.

Read the whole report card here. It's the best brief summery and analysis of the bill that I've seen.

Posted by Jay Hancock at 1:51 PM | | Comments (5)
Categories: Finance
        

Regulators should give Hale, 1st Mariner more time

As Hanah Cho notes in the story on 1st Mariner Bank's Ed Hale hawking stock in Dundalk, 1st Mariner still hasn't hit the capital-ratio target that federal regulators have set. The bank has raised $25 million since last fall, including $2 million from Hale and $14 million from the sale of a consumer-loan outfit. Through Hale the company retired trust-preferred shares with a face value of $20 million, which helped the holding company's capital balance. But the bank is still about $10 million short of the regulatory target.

There are no guarantees, but I would guess that the FDIC will leave 1st Mariner alone for now despite the capital deficiency. Hale and bank executives have made strenuous, good-faith efforts to prop the place up. A government forced sale or seizure would impair the value of the investments that all those local folks just put in, which would look bad politically. And there are probably hundreds of banks that 1) haven't worked as hard as 1st Mariner to get right with the FDIC and 2) are in much worse shape financially. In the triage of wounded banks, the FDIC has many more urgent cases to attend to.

That said, Hale needs an economic recovery. He needs the loan losses to stop. He needs to keep making money on mortgage originations and the huge spreads being manufactured by Ben Bernanke. A double-dip recession would not be good for Edwin Hale Sr.

Posted by Jay Hancock at 7:59 AM | | Comments (5)
Categories: Finance
        

June 24, 2010

Public Service Commission fixes "price to compare"

Ask ("Somebody will have to fix this" -- this blog, Feb. 22) and receive. The Public Service Commission has vastly improved the flawed "price to compare" information published for electricity shoppers. The idea is to tell shoppers what BGE's standard price is. Yet the price was often months old and confusingly blended seasonal costs into an annual mishmash.

Today the PSC issued an order making BGE and other utilities incorporate future price information as well as current prices, and break out the seasonality. Here is the new language:

Supply Price Comparison Information: The current price for Standard Offer Service electricity is x.x cents/kWh, effective through [date]. Standard Offer Service electricity will cost x.x cents/kWh beginning on [date] through [date]. The price of Standard Offer Service electricity after [date] has not yet been set. The weighted average price of Standard Offer Service electricity will be x.x cents through [date].
Posted by Jay Hancock at 12:30 PM | | Comments (3)
Categories: BGE/electricity
        

Fraud in the homebuyer tax credit? Shocking!

The mortgage disaster was the fraudfest of all fraudfests. "Liar loans," in which borrowers lied about their income and assets, became common. Mortgage originators played along. So why would the mortgage-disaster bailout be any different? A Treasury Department inspector general reports that 4,608 people have claimed the homebuyer tax credit even though their home is a government prison. Some of them could have been filing jointly with spouses eligible for the credit, but more than 700 not only didn't file jointly but were serving life sentences!

Of those returns from single-filing lifers, 174 were filed by paid, professional tax preparers. So again the middlemen are aiding and abetting.

Some other choice tidbits from the IG's report, which you can read in whole here.

-- Florida prisoners seem to have been especially diligent about defrauding the government. More than half the inmates who got the credit and are serving life sentences were in Florida.

-- Many of the fraudulent inmate returns slipped past screens set up by the IRS that were supposed to catch them. IRS employees also failed to follow up on other signs of fraud in numerous returns, the IG said.

-- More than 80 IRS employees claimed the credit even though they don't seem to have bought a house in the required time period.

-- Either there's an unreported overcrowding problem in U.S. housing, or lots of people fraudulently claimed the same addresses for their "new homes." There were five addresses claimed by 256 people.

-- Some people claimed the homebuyer tax credit for houses bought as long ago as 2000 and 2001.

-- The IRS agrees that the money given to prisoners should be recovered! Inspector general: "The Director, Reporting Compliance, Wage and Investment Division, should ensure that steps are taken to recover fraudulent Homebuyer Credits refunded to prisoners." The IRS: "IRS management agreed with this recommendation."

Posted by Jay Hancock at 8:58 AM | | Comments (3)
Categories: Taxes
        

June 23, 2010

BRAC jobs only partly fill 100,000-job hole

As Jamie Smith Hopkins reports, Maryland's heralded BRAC stimulus is about to fully kick in. Fifteen hundred jobs are coming to Aberdeen Proving Ground this summer. Another 12,000 government and embedded contractor jobs are supposed to be at Aberdeen and Anne Arundel County's Fort Meade by fall of 2011. Add another few thousand "spinoff" jobs created at off-base vendors.

But they won't fill Maryland's 100,000-job hole left by the Great Recession. The state had 2.62 million jobs in February 2008 before sliding to 2.49 million in January 2010. We've gained back 50,000 in the last three months, the Labor Department says, although these are estimates subject to revision, and many are temporary Census jobs. Add another 25,000 jobs from BRAC. But we'll still be in the hole. Just wanted to put things in perspective.

Posted by Jay Hancock at 8:00 AM | | Comments (6)
        

Letting students set teacher pay is NOT conservative

The market is a fabuous thing, the best mechanism for raising standards of living and allocating capital. But it's hardly perfect, and it doesn't work in all situations and for every product. Too often zealots push the free-market concept over the edge of the cliff. Example 1: Electricity deregulation. Example 2: Subprime mortgages. Example 3: Executive pay.

Example 4 comes from Texas, where the Texas Public Policy Foundation is promoting the idea of rewarding college professors with "up to $10,000 based on anonymous student evaluations, called 'customer satisfaction,'" according to The Eagle. Texas A&M is already doing it.

It's the "customer" model gone berserk. College kids and their parents pay thousands for an educational "product," the reformers are thinking. Why, they're no different than somebody buying bread at Safeway. They should be able to make their preferences known! Let those 19-year-old customers rule!

Writing for the NYT, Stanley Fish has the appropriate response:

If a waiter asks me, “Was everything to your taste, sir?”, I am in a position to answer him authoritatively (if I choose to). When I pick up my shirt from the dry cleaner, I immediately know whether the offending spot has been removed. But when, as a student, I exit from a class or even from an entire course, it may be years before I know whether I got my money’s worth, and that goes both ways.

What's surprising is that people who think of themselves as conservative are associated with the idea of paying teachers based on student preferences. Conservatism used to be about having youth defer to authority figures such as teachers. Conservatism is about responding to challenges with discipline and hard work, even if the taskmaster meting out assignments isn't your best friend. Conservatism is about having schools, churches and other institutions mold sometimes recalcitrant youths, building character to turn out productive members of society.

But the Texas Public Policy Foundation wants to put students in the driver's seat. SDS and the other lefty student radicals who tried to hijack college administrations in the 1960s would surely approve. Coming next from the TPPF: Letting U.S. Marine recruits -- the "customers" at Parris Island boot camp -- rate their drill instructors?

UPDATE: Evidence here, via Greg Mankiw:

[S]tudents appear to reward higher grades in the introductory course but punish professors who increase deep learning (introductory course professor value‐added in follow‐on courses). Since many U.S. colleges and universities use student evaluations as a measurement of teaching quality for academic promotion and tenure decisions, this latter finding draws into question the value and accuracy of this practice.
Posted by Jay Hancock at 6:00 AM | | Comments (6)
Categories: Education
        

June 22, 2010

Cigs now $11/pack in NYC; smugglers, on your mark!

The virtual outlawing of cigarettes proceeds apace. Taxes are now so high in New York that the economically rational decision is overwhelmingly to buy smuggled smokes. Today's NYT reports that on July 1 the average price per pack in New York will be $9.20. In New York City it'll be $11.

And rest assured that there will be plenty of cheap, smuggled cigarettes. Smugglers bring vanloads of smokes from southern states with low taxes and resell them in Maryland and points farther north. Law enforcement tries to crack down, but the incentive to make "arbitrage" profits between South Carolina and New York is now huge. Decade by decade, we're seeing a convergence in the legal treatment of tobacco and marijuana. As marijuana becomes decriminalized, cigarettes are being slowly criminalized.

Not necessarily a terrible thing. Studies show that high cigarette taxes reduce use among the young. But smuggling creates another challenge for law enforcement.

Posted by Jay Hancock at 9:29 AM | | Comments (28)
Categories: Taxes
        

Bottle tax more about egos, less about money

The tension over Baltimore's bottle tax, passed last night to save city services, shows how politics can veer from substance into petty drama. We're talking about a nearly invisible few cents per drink. But in City Council it became a contest not about revenue but about egos, "winning," "losing" and pride.

Retail interests said the 2-cent tax that passed was better than the 4 cents originally proposed. It's a difference of two pennies. Customers aren't going to notice. They wouldn't have noticed 4 cents. Retail lobbyists can paint the 2-cent deal as a partial "victory." So can Mayor Stephanie Rawlings-Blake, who backed the 4-cent tax.

Two miserable pennies. But it created the perception of compromise, which got the deal done. Surely heavy pressure was applied to Helen Holton, who voted against the 4-cent deal last week but reintroduced the bottle tax last night and voted for the 2-cent version. But give her credit for being willing to change her mind. Her ego looks like it took the biggest hit.

UPDATE FRIDAY: Pulled from comments, a good question raised by reader Martin:

Why is it the when the city talks about cutting back, the police and fire fighters are always top of the list? Because they want to scare the city residents into paying more taxes. The city government is like any old, overstuffed bureaucracy. Full of fat, middle management, and administrators.
Posted by Jay Hancock at 8:53 AM | | Comments (23)
Categories: Taxes
        

BGE should offer big nighttime electricity discounts

The Public Service Commission's almost total rejection of Baltimore Gas & Electric's "smart meter" plan is surprising but not terrible. It'll deprive activist consumers from getting information to help them reduce energy use. It'll delay the education of residential consumers about the true, hourly cost of electricity. But it'll keep Maryland from being a guinea pig for the smart grid. And it won't stop other ways of conserving energy.

Here's one: The PSC and utilities should work to set up a "time of use" program that gives deep discounts for burning kilowatts at night. BGE has a time of use deal now, but it stinks. You pay 14.4 cents per peak kilowatt-hour in the summertime and 9.4 cents at night. 9.4 cents isn't anywhere close to the rock-bottom cost of offpeak kilowatts on the wholesale market. There's really no reason to sign up for this plan.

But if regulators could work with utilities and grid operators to fix this, there could be ample incentive to get people to switch to off-peak use and take pressure off the grid. Off-peak use is about to become more important because of plug-in cars. If you buy a Chevy Volt you're going to be recharging it at night.

I know, smart meters could have been part of a good time-of-use plan. (You need a special meter for TOU.) But their rejection is no reason not to reform BGE's present, poor time-of-use program.

Posted by Jay Hancock at 8:19 AM | | Comments (13)
Categories: BGE/electricity
        

June 21, 2010

Should I rip off my insurance company?

tree1.JPG

This is what they call "moral hazard" in the insurance business. A blue spruce in my front yard is starting to tip over and is aimed right at the garage. It's leaning way to the left, more than the picture shows. The roots on the right side are getting pulled up out of the ground, so you can tell the sucker's going to go sooner or later.

Here's the moral temptation: If I do nothing and wait until the tree crashes into the garage, I'll have to pay only the insurance deductible, which I think is $500. Erie Insurance and its policyholders will pay to remove the fallen tree, fix the garage damage and probably give me a new garage roof, too. The whole bill could easily be $5,000.

Should I be irresponsible, ignore the problem and stick the insurance company with most of the bill? It's an issue insurers have to deal with every day. Policyholders increase risky behavior because they know they won't have to bear the full cost of any damage.

My wife and I opted to be upright citizens. As I blog, tree professionals are cutting the thing down and doing some other work. All told it'll cost $1,100 or so. You're welcome, Erie Insurance! 

 

Posted by Jay Hancock at 6:14 AM | | Comments (15)
        

June 18, 2010

Rosecroft has uphill battle to survive

It's hard to imagine Rosecroft Raceway surviving long-term. The track, which hasn't run a harness race regular harness racing in two years, says it'll shut down on July 1. (It has been getting patrons by showing remote races on TV but is still losing money.) But since it's an election year and the track has become a political issue, there are efforts to keep it on life support.

Former Gov. Robert L. Ehrlich Jr., who is running to regain the governorship, blames Gov. Martin O'Malley for the Three Stooges-caliber roll-out of Maryland slot machines. Slots could have saved Rosecroft if the General Assembly had approved them during his administration, as he wanted, Ehrlich says. Now the O'Malley administration is looking for ways to stop the closure.

Other plans have been floated. Senate President Mike Miller wanted to allow card-gambling at Rosecroft, but he didn't get his way. But if a business's core product -- harness racing -- is so unprofitable it stopped offering it two years ago, what's the point?

UPDATE: Reader Mark notes:

Rosecroft conducted 6 days of live pari-mutuel harness racing in 2009 when it hosted the Maryland Standardbred Fund races and the Maryland Sire Stakes - an overflow crowd of several dozen (including yours truly) turned out each day.
Posted by Jay Hancock at 8:44 AM | | Comments (17)
Categories: Slots
        

Rascover: State punts on electricity education

Check out Barry Rascovar's column in The Gazette on the poor job being done by the Public Service Commission in educating household consumers about how to shop for electricity.

At a time when cheaper electric rates are available from a host of alternative suppliers, the Public Service Commission has stuck its head in the sand and refused to tell consumers about a wealth of choices available to Maryland residents, who might be able to cut their electric bills by $100 or more annually.

The PSC refuses to be proactive or pro-consumer.

Posted by Jay Hancock at 7:55 AM | | Comments (3)
Categories: BGE/electricity
        

We hate Walmart so much we spent $400 billion there

There seems to be a lot less to this Consumer Reports survey on stores than meets the eye. Subscribers told the magazine that prices at JCPenney, Sears, Dillards etc. are at least as low as those at Walmart. Almost three-fourths of those responding "found at least one problem to complain about, and half had two or more complaints about the store [Walmart] or its staff," said the magazine.

So there's a huge selection bias. These are Consumer Reports subscribers, which are surely not typical American customers. And they're giving their hazy impressions about Walmart and the other stores. It's not quantitative data. Also, I'm guessing that among the 30,000 responders were those who rated Walmart low for PC reasons, not because of the shopping experience it offers. If Walmart ranked as low in the retail world as the Consumer Reports readers seem to think, it wouldn't be selling $400 billion worth of stuff every year. From the CR piece:

Last year shoppers spent $405 billion at Walmart, the world's largest retailer. But according to a new study by the Consumer Reports National Research Center, they might be better off if they switch stores.

For all the talk about Walmart's low prices, 30,666 subscribers we surveyed said the prices at 10 other retailers, including JCPenney, Sears, Dillard's, and Meijer, were at least as good.

Posted by Jay Hancock at 6:00 AM | | Comments (6)
        

June 17, 2010

Fannie Mae: We don't want you to default. Really!

Fannie Mae, which climbed on board but did not start the subprime mortgage bandwagon that crippled the world economy, has decided, after much deliberation, that buyers should be able to afford the houses they move into.

It’s important to make sure you can keep your home over the long-term. Fannie Mae offers five steps to help those thinking about buying a home select the right house for them and understand the affordable financing options that can help make homeownership a long-term success.

In other news, Lucy has begun counseling Charlie Brown on how to kick a football.

Posted by Jay Hancock at 10:52 AM | | Comments (0)
Categories: The Great Recession
        

Rich people, give back!

Noblesse oblige has been out of fashion for a long time, suppressed by notions of social Darwinism, by worries about generosity being perceived as paternalism and by simple selfishness. Gates and Buffett are trying to make it popular again. It could, as Stacy Palmer, editor of The Chronicle of Philanthropy noted, be a tough job:

"It's a stretch to see how they're going to get to the $600 billion figure," she said, noting that only 17 people on the Forbes list of the 400 wealthiest people in America are also on the Chronicle's list of the most generous American donors.
Posted by Jay Hancock at 9:15 AM | | Comments (5)
        

How to fix Social Security in 3 easy steps

From Barry Ritholtz:

I am going to hazard the surprising forecast that Social Security will never run out of money. If that sounds like some sort of economic blasphemy, just take a look across the pond for a glimpse of SS’s future. President Sarkozy of France (France!) is showing not only Greece how to get its welfare state in order, but he is also demonstrating to us Americans what the future of entitlement programs look like.

Details here.

Posted by Jay Hancock at 8:41 AM | | Comments (2)
Categories: Taxes
        

June 16, 2010

Ehrlich: My slots plan would have helped Rosecroft

Once and wannabe future Gov. Bob Ehrlich says that, if the legislature had approved his slots proposal, Rosecroft would be on more-solid financial ground. From the campaign statement in the Inbox:

“It’s a shame that these hard working Marylanders will soon be out of work, particularly since the closure of Rosecroft could have been avoided,” Ehrlich said. “Rosecroft’s closure is a sobering reminder of state government’s failure to design a viable gaming program in Maryland. I was proud to introduce a bipartisan plan for slot machines at Maryland race tracks as far back as 2003. Rosecroft would be on much stronger financial footing today had the legislature adopted that plan and had the O’Malley Administration not bungled implementation of its own flawed plan."

It's a fair point that if the General Assembly had approved slots when Ehrlich was governor, Maryland racetracks, and possibly Rosecroft, would be doing better. It's also accurate to say the slots rollout under O'Malley has been bungled. But the main bunglers are the would-be slots operators, led by the Maryland Jockey Club, not the politicians.

Posted by Jay Hancock at 3:27 PM | | Comments (6)
Categories: Slots
        

Colleges, universities and credit-cards

Last year's credit-card reform law requires the disclosure of "affinity card" agreements that colleges and universities hawk to their alumni and sometimes students. Good piece by Ben Protess and Jeannette Neumann at Huffington Post, which finds that some schools offer card companies special access to school events and reap bonuses when cardholders rack up debt.

I have sent the following email to PR people at Johns Hopkins, Maryland Loyola, University of Maryland College Park, University of Maryland Baltimore County and Towson University.

Dear Higher-education spokespeople: Sorry for the mass email. I’m interested in disclosure requirements in last year’s Credit Card Accountability, Responsibility and Disclosure Act. Among other things, the Act amends the Truth-in-Lending laws to require disclosure of contracts between credit-card companies and colleges and/or their alumni associations. Given consumers’ problems with credit cards generally and the additional problem of students and young people piling up too much debt, I’m interested in seeing the contracts signed by your institutions.

The disclosure process as spelled out in the law is a bit roundabout. (See below.) From my read it sounds like the card companies have to submit the information to the Federal Reserve, which then makes it available to Congress and the public. I’m hoping that you can share the contracts with me directly. Googling and clip searches suggest that you or your alumni associations have all signed affinity-card deals with Bank of America. Could you please share the terms of your agreements, as specified in the law below, with me in the next couple of weeks? Thanks for your consideration.

Posted by Jay Hancock at 12:50 PM | | Comments (8)
Categories: Finance
        

Maryland new-car sales rose 23% in May

The May new-car sales are out this morning from MVA. MVA titled 24,383 new cars last month, up 23 percent from 19,781 in the same month in 2009.

That's still far below the 29,035 vehicles dealers sold in May 2008 and the 34,931 they sold in May 2007. Here is today's column about car sales and the economic recovery. Through May Maryland dealers have sold 107,375 new cars, an 18-percent increase over sales for the first five months of 2009.

Posted by Jay Hancock at 9:27 AM | | Comments (1)
        

Car sales as an economic barometer

Three years ago I wrote a column suggesting that softness in Maryland car sales presaged a recession.

In coming months the car trade will be Maryland's dashboard warning light. It may not be flashing recession yet, but keep an eye out. "There may be some nervousness about the whole economy psychologically," says Daraius Irani, director of applied economics at RESI, Towson University's research and consulting arm. "So people are saying, `You know what? Maybe this year isn't the year we buy the Lexus car.' "

Today's column is about how Maryland car sales are signaling recovery. One hopes!

Last month hundreds of people walked into Jones Junction in Bel Air and bought Chryslers, Hyundais, Jeeps, Subarus and Nissans. Even Toyotas!

They were not herded in at gunpoint. Nor were they financed by subprime lenders heedless of repayment. Many were staked by real banks with trained lending officers inquiring about their income and jobs.

Nobody from government bribed these folks to buy cars. The $3 billion cash-for-clunkers program ran out almost a year ago. The buyers made rational decisions based on their needs, their private wherewithal and their appraisals of the economy.

Look President Obama, no stimulus!

Posted by Jay Hancock at 8:39 AM | | Comments (2)
        

Blame reimbursement, not schools for doc shortage

The piece by Fitzhugh Mullan et. al. in the newest Annals of Internal Medicine focuses on the role medical schools play in producing primary-care doctors. It ranks schools in terms of how they fulfill their "social mission" of educating primary-care docs to be the first medical responders for sick people and the consultants to keep healthy people healthy. Meredith Cohn and Andrea Walker write about the study in today's paper. But the schools aren't the important variable in the equation, and the family-doc shortage isn't mainly their fault.

True, there are steps places such as Johns Hopkins could take to boost production of primary-care physicians. Direct tons of financial aid to students studying internal medicine, for example. The main factor preventing more people from becoming primary-care doctors, however, is the abysmally low pay that these kinds of practitioners receive. Studentdoc.com tells the story. Family-care doctors make as little as $128,000 a year. Average pay is $204,000. Average pay for pediatricians is $175,000.

That might sound like a lot of money to many people, but for highly trained doctors charged with keeping people healthy, it's not nearly enough. Medicare and private insurers need to reduce payments for specialists and "procedure medicine" and start paying more to docs who stop sickness before it happens. Those docs are the primary-care folks.

Posted by Jay Hancock at 8:34 AM | | Comments (9)
Categories: Health Care
        

June 15, 2010

People playing chess on roller coasters

chessrollercoasters.jpg

There is more here. What? You think some sort of explanation is needed?

Posted by Jay Hancock at 10:41 AM | | Comments (1)
        

Now states want propaganda from film makers

Once state policymakers required only glamour, street-scenes and local employment from the film productions getting millions in taxpayer money. Now they want PR. Michigan has decided that having Michigan taxpayers pay for a cannibal movie might not be a great idea. From the NYT:

“This film is unlikely to promote tourism in Michigan or to present or reflect Michigan in a positive light,” wrote Janet Lockwood, Michigan’s film commissioner. Ms. Lockwood particularly objected to “this extreme horror film’s subject matter, namely realistic cannibalism; the gruesome and graphically violent depictions described in the screenplay; and the explicit nature of the script.”

These are the hazards of patronage for all artists and journalists. But in truth states shouldn't be using taxpayer money to pay anybody in Hollywood making anything. Maryland has sensibly rejected pleas to have the General Assembly pay welfare to film makers.

Posted by Jay Hancock at 10:25 AM | | Comments (2)
Categories: Corporate welfare
        

June 14, 2010

Moody's: Right on top of things again

Can't for the life understand why the market is reacting to the Moody's downgrade of Greek debt to junk. The market has known Greek bonds were risky for months. It's Moody's that was clueless, assigning an "A3" grade to Greek bonds. Says Wiki:

A1, A2, A3 Moody judges obligations rated A as "upper-medium grade", subject to "low credit risk",[7] but that have elements "present that suggest a susceptibility to impairment over the long term".[8]

Beautiful. "Subject to low credit risk." And Lehman Brothers, according to Moody's, was "A1."

Posted by Jay Hancock at 3:11 PM | | Comments (1)
        

Report: Massive congressional conflicts of interest

Very nicely done and disturbing report from the Washington Post's Robert O'Harrow Jr. and Dan Keating on the power of members of Congress to directly affect their investments. Among the findings:

On the House Agriculture Committee, which holds sway over farm policies and subsidies, members had farming and agribusiness investments worth five times on average the amount held by other colleagues in the House. Many of the committee members' holdings were in family farms. Nothing prevents those members from also receiving farm subsidies, and in the past, some have.

Likewise, House Energy and Commerce Committee members, who routinely hold hearings about telecommunications and computer issues, had heavier than average investments in companies such as Oracle, Nokia, AT&T and Verizon.

House Homeland Security Committee members also had more communications and electronics holdings as a group than the House as a whole, and House Transportation and Infrastructure Committee members as a group owned almost six times more holdings in transportation firms.

In the Senate, the Banking, Housing and Urban Affairs Committee had on average almost twice the value of holdings in finance, insurance and real estate as that chamber as a whole. The Senate Environment and Public Works Committee members had almost three times the value of agribusiness holdings as their colleagues on other committees.

Posted by Jay Hancock at 10:24 AM | | Comments (3)
Categories: Corporate welfare
        

June 12, 2010

The best paragraph I have read so far today

is in Tom Carson's review in the NYT of John Waters's latest memoir:

If H. L. Mencken was the Sage of Baltimore, Waters is, at least, the parsley. Just for fun, consider what these two share: impudence, contrariness, uproarious insults to bourgeois values that made them controversial, then fashionable, then had them prematurely posing for their ­native-son statues. That they’d have horrified each other is just your usual Balmer lagniappe.
Posted by Jay Hancock at 9:29 AM | | Comments (1)
        

June 11, 2010

Medical board took months to investigate Midei

Tricia Bishop reports that Dr. Mark Midei, alleged by St. Joseph Hospital to have implanted more than 500 coronary-artery stents that may have been unneeded, is now charged by the Maryland Board of Physicians as follows: "Willfully makes or files a false report or record in the practice of medicine" and "Grossly overutilizes health care services." The proceedings could lead to the loss of his license.

A couple aspects of the story are noteworthy:

-- The board received its initial complaint about Midei in November 2008. An anonymous person describing him/herself as a St. Joseph employee detailed 36 cases in which stents had supposedly been improperly placed. The board received another, similar complaint in April 2009. But it didn't launch the investigation until it was notified on July 19, 2009, that St. Joseph had revoked Midei's privileges.

-- The board charging document includes the first bits of explanation from Midei to be made public. To wit:

Midei explained the discrepancy by saying he routinely used certain percentages — 70, 80, 90 -- as shorthand to signify mild, moderate or significant blockage, the document claims. But he conceded, after reviewing his cases, that there was "significantly lower percentages of stenosis than he had initially dictated at the time of the procedure."

Midei also told hospital staff that he considered other clinical symptoms aside from test results when determining whether to place a stent, according to the charging document.

When queried by St. Joseph officials about the stents, according to the charging document, Midei "expressed 'a little bit of surprise' that he had an established pattern of overestimating the degree of stenosis by consistently using the default percentages."


Posted by Jay Hancock at 1:41 PM | | Comments (1)
Categories: Health Care
        

Maryland: Tax hell or business paradise?

Maryland Reporter's Len Lazarick has a good summary of the annual conference of the Maryland Economic Development Association, at which I spoke on Tuesday. The gist:

“We’re positioned in a good place,” especially when it comes to investment in human capital, [economist Anirban Basu said. Despite “all this talk about a lousy business climate, we’re not a basket case,” said the economist who does consulting for state and local governments, as well as private sector clients. “If Virginia was such a paradise, you’d live there,” Basu told the crowd at the Cambridge Hyatt Regency.

On the other hand, “many of the businesses do not feel loved” in dealing with government agencies, he said, and data indicates that tax levels are “on the high side.”

Posted by Jay Hancock at 11:07 AM | | Comments (6)
        

Is Baltimore's industrial energy tax dead?

Helen Holton, who proposed slapping an 8 percent energy tax on Baltimore's few remaining factories, says approval of the tax yesterday was delayed by "a technical issue." Carl Stokes says it's "almost off the table."

Let's hope so. Manufacturing plants are Baltimore's most-endangered business species, and they're much more important than their dwindling numbers might suggest. Factories pay much better than the other jobs Baltimore has to offer folks without college degrees. Heck, Baltimore factory workers probably make more than a lot of folks with college degrees.

Among the struggling Baltimore manufacturers is National Gypsum, the drywall maker that has been hurt by the housing collapse. Plant manager Ricky Smith told The Sun that he spends $16 million a year on energy, so the tax would be $128,000 for that facility alone. The Domino Sugars plant would have to pay more than $1 million.

UPDATE: Pulled from comments, energy lawyer Mike Powell:

Actually, there is a missing zero in that calculation. 8% of National Gypsum's bill is $1.28 million a year not 128,000.

When you actually do the calculations, the actual cost is likely to be more than 8%. That is because the rate is based upon revenues in 2005 (when there were far more industrial customers) and adjusted by the consumer price index since 2005 (which has gone up more than wholesale energy costs)


Posted by Jay Hancock at 8:55 AM | | Comments (3)
Categories: Taxes
        

June 10, 2010

GM "Chevy" memo shows 8-cylinder cluelessness

So maybe it really is the same, dumb old General Motors, after all. In an internal memo, some marketing genius has asked employees to refer to only to "Chevrolet," never "Chevy," the affectionate nickname given to the brand for decades in auto showrooms, popular songs, speedway pits and poems. This memo can now be used to illustrate the concept, "anal-pedantic," which I have just made up.

GM says it's trying to ape Coke and Apple in brand-terminology consistency. Note, however, that Coke's real name is Coca-Cola. THAT company intelligently embraced the product's informal nickname, registering Coke as a trademark in 1944 and proudly using it on the bottles. The difference between great brands and mediocre brands has nothing to do with name consistency. It has to do with the imagination of the people running the business.

"We'd ask that whether you're talking to a dealer, reviewing dealer advertising, or speaking with friends and family, that you communicate our brand as Chevrolet moving forward," GM said in a memo to employees on Tuesday.

"When you look at the most recognized brands throughout the world, such as Coke or Apple for instance, one of the things they all focus on is the consistency of their branding," the memo said.

Posted by Jay Hancock at 3:33 PM | | Comments (9)
Categories: Marketing
        

Smith: Imbalances likely to spur new financial crises

Yves Smith of Naked Capitalism says:

It is not a sign of intelligence to repeat a course of action and expect different results. Yet our officialdom is doing pretty much just that on the economic front. Treasury and the Fed in particular seem quite pleased with their success in patching up the financial system with duct tape and baling wire and prodding it into a semblance of operation via massive support, most notably via super low interest rates.

Even so, the mortgage market is on life support, with government guaranteed mortgages accounting for over 95% of the market in first quarter 2010, versus roughly 40% pre-crisis. Banks are still not lending much, and have reined in particularly hard with small businesses who are the engine of hiring. Financial firms seem to be deriving their real cash earnings primarily from yield curve arbitrage (borrowing at near zero and parking the proceeds in longer-dated Treasuries or other low risk assets) and trading. While these may rebuild their balance sheets, the banks have yet to write down and restructure bad debts sufficiently (while the banks do appear to have taken some hits on impaired assets, a fair bit of anecdotal evidence suggests the markdowns are not deep enough).

There is much more here.

Posted by Jay Hancock at 10:39 AM | | Comments (1)
Categories: The Great Recession
        

Govt. workers make 44% more than private workers

Here is the latest statistical data from the Labor Department on average compensation paid to private-sector workers and state- and local-government workers. Note that the figure includes cash wages AND the value of benefits, including deferred compensation such as pension benefits.

On average, private-sector workers made $27.73 per hour in March, the Labor Department says. By contrast, the average state and local government worker earned $39.81 per hour. This is not a convenient statistic for public-sector unions fighting to preserve their pensions and retirement health-care plans.

Employer costs for employee compensation averaged $29.71 per hour worked in March 2010, the U.S. Bureau of Labor Statistics reported today. Wages and salaries averaged $20.67 per hour worked and accounted for 69.6 percent of these costs, while benefits averaged $9.04 and accounted for the remaining 30.4 percent.

Total employer compensation costs for private industry workers averaged $27.73 per hour worked in March 2010. Total employer compensation costs for State and local government workers averaged $39.81 per hour worked in March 2010. Employer Costs for Employee Compensation (ECEC), a product of the National Compensation Survey, measures employer costs for wages, salaries, and employee benefits for nonfarm private and State and local government workers.

Posted by Jay Hancock at 6:08 AM | | Comments (21)
Categories: Slo-mo fiscal train crash
        

June 9, 2010

Tax beverages, not Baltimore factory energy!

It's mind-blowing that City Council is talking about taxing the energy used by Baltimore's dwindling base of manufacturers as an alternative to the "bottle tax" of 4 cents a drink. Baltimore had 13,000 factory jobs in April -- the least ever recorded since the Labor Department began keeping track. That's down from 27,000 in 2000 and 43,000 in 1990.

These jobs typically come with decent pay, health plans and other benefits. Baltimore needs to do whatever it can to support manufacturing. It already does little enough. Factories are intensive users of electricity, which is already costly enough in Maryland. Taxing it at 8 percent would cost even small shops thousands. Maryland Thermoform's Scott Macdonald figures his 8 percent energy tax would be $28,000 a year.

Forcing an expensive energy tax on Baltimore manufacturers is a great way to ensure that the city's number of factory jobs keeps heading toward zero. That'll hurt the city's budget a lot more than the tax might help it temporarily.

Meanwhile there is a good discussion of beverage and soda-pop taxes by Harvard's Greg Mankiw here and NYT's David Leonhardt here. Tax the soda, says Leonhardt:

A soda tax obviously would not solve the obesity epidemic. But it appears to be one of the most promising responses, given the central role that sugary drinks play in the epidemic and the fact that they have no nutritional benefit. A tax would also help reverse the big decline in the price of soda over the last few decades, at the same that the price of fruit and vegetables has been rising. Finally, as with a gasoline tax, a soda tax would help cover the broader costs that the product imposes on taxpayers.


Posted by Jay Hancock at 6:58 PM | | Comments (15)
Categories: Manufacturing
        

Hanke: Krugman is wrong, again

Joining the online battle over whether slashing government spending during a punk economy will plunge a country into recession, Johns Hopkins prof Steve Hanke recalls the Margaret Thatcher cuts of the 1980s that preceded the UK's recovery in that decade:

Margaret Thatcher also made a dash for confidence and growth via a fiscal squeeze. To restart the economy in 1981, Thatcher instituted a fierce attack on the British deficit, coupled with an expansionary monetary policy. Her moves were immediately condemned by 364 distinguished economists. In a letter to the Times of London, they wrote a knee-jerk Keynesian (Prof. Krugman-type) response: “Present policies will deepen the depression, erode the industrial base of our economy and threaten its social and political stability.”

Thatcher was quickly vindicated. No sooner had the 364 affixed their signatures than the economy boomed. People had confidence in Britain again, and Thatcher was able to introduce a long series of deep free-market reforms. While Prof. Krugman’s authority is weighty, his arguments and evidence are slender.

Hanke follows up, mentioning a similar New Zealand example here.  More discussion on Marginal Revolution here.

 

Posted by Jay Hancock at 4:55 PM | | Comments (2)
Categories: The Great Recession
        

Head to heaven now, billionaires, before it's too late

Because of Washington shenanigans and the wacky tax code, there is a brief window in time with no federal inheritance tax. If you die this year, no matter how rich you are, the taxman cannot take anything from the estate before your heirs collect. NYT takes note of perhaps the richest person so far to take advantage of this loophole, a Texas energy tycoon named Dan Duncan.

Dan L. Duncan, a soft-spoken farm boy who started with $10,000 and two propane trucks, and built a network of natural gas processing plants and pipelines that made him the richest person in Houston, died in late March of a brain hemorrhage at 77.

Had his life ended three months earlier, Mr. Duncan’s riches — Forbes magazine estimated his worth at $9 billion, ranking him as the 74th wealthiest in the world — would have been subject to a federal tax of at least 45 percent. If he had lived past Jan. 1, 2011, the rate would be even higher — 55 percent.

Instead, because Congress allowed the tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan’s four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury.

Posted by Jay Hancock at 9:14 AM | | Comments (8)
Categories: Taxes
        

Maryland's economic pluses, despite Northrop loss

Yesterday morning I was in Cambridge talking to a breakfast meeting of the Maryland Economic Development Association. The topic was the challenges of selling Maryland as an economic and business destination. I mentioned a 2007 column I had written on Maryland's virtues and the overemphasis on tax rates in many rankings of "business friendliness." Somebody asked me to reprise the column, so here it is:

Virginia crushes Maryland in Economic Ranking of All 50 States" was the provocative headline on last week's announcement by a pro-markets, pro-limited government research group.

That's true - if you don't measure poverty, education, business creation, household income, homeownership growth, venture-capital investment, broadband access, major league sports, cultural opportunities, sprawl and pollution.

Other than those areas, in which Maryland does better than Virginia, this is a terrible state in which to live, raise a family, hold a job and own a business.

As you might guess, the study by the American Legislative Exchange Council gave states favorable marks for low taxes, low wages and not much else.

But low taxes aren't everything, or else Mississippi would be a thriving corridor of biotech startups and investment banks. Economies need reasonable taxes and investment in brains, bodies and infrastructure. Any study that pretends otherwise isn't worth the 4 megabytes it takes on your hard drive.

"The historical evidence is clear," says the report, by economists Arthur Laffer (of "Laffer Curve" fame) and Stephen Moore of The Wall Street Journal. "States that keep spending and taxes low exhibit the best economic results, while states that follow the tax-and-spend path lag far behind."

That must explain the brilliant success of South Dakota, Wyoming and Tennessee, each ranking in the Exchange Council's top five states.

Virginia was No. 6, getting plaudits for its low minimum wage and lack of inheritance tax as well as middle-of-the-road corporate and personal taxes. Maryland was 32nd ("19th worst," said the news release) and would have done even more poorly if the study had taken Gov. Martin O'Malley's recent tax increases into account.

You can certainly draw a pattern of low-tax states doing well in recent years, and Laffer and Moore have done so. Utah, No. 1 on their list, boosted its employment base by a fourth over the past decade. No. 2 Arizona performed even more spectacularly, increasing jobs by almost 40 percent.

But the pattern is by no means uniform. And as trained economists, the two should know that statistical correlation does not equal causation.

Federal water subsidies, air conditioning and retirees fleeing northern winters have as much to do with Sun Belt growth as low taxes. Texas and the Rocky Mountain states are thriving because of high oil prices, which are more or less indifferent to the personal income-tax level.

The study approvingly quotes Forbes magazine publisher Rich Karlgaard. "The most valuable natural resource in the 21st century is brains. Smart people tend to be mobile. Watch where they go. Because where they go, robust economic activity will follow."

That could be Maryland's motto. Maryland is No. 4 in per-capita college graduates, No. 3 in doctorate-level engineers and scientists and No. 7 in the recent increase of high-school graduates. (Citations and links for all these rankings can be found on my blog. Go to The Sun's home page, scroll down to the "Blogs" box and find it in "Choose a blog.")

You don't get a work force that smart by skimping on education. What businesses hate even more than taxes is trouble finding qualified employees. A smart work force is one reason Maryland is No. 1 in household income, No. 1 in research and development and No. 8 in venture capital investments.

"No state has ever taxed its way to prosperity," says the Exchange Council's study.

Actually, a persuasive argument can be made that North Carolina did.

In 1959 it was one of the poorest places in the nation, ranking 45th with a median family income 30 percent below that of the country as a whole. In the early 1960s Gov. Terry Sanford raised taxes and hugely increased spending on public education, from kindergarten to graduate school. Ungrateful voters tossed him out after one term.

Today, North Carolina has one of the best higher education systems in the country. Family income is only 11 percent less than that of the nation and ranks 39th - ahead of every southern state except Texas, Florida, Virginia and Georgia. If North Carolina's Research Triangle gives Maryland a run for the money in biotech research and venture capital investment, Terry Sanford and investment in education are two reasons why.

Maryland's situation today is the opposite of North Carolina's in 1959. Thanks to buckets of federal spending on war and homeland security, Maryland rose to No. 1 in household income last year. But the recipe for the future is the same. Cutting taxes and starving public assets of capital is not the way to compete.

The best preparation for the post-boom era is what Maryland is doing: intelligently investing in education, transportation and quality of life.

Posted by Jay Hancock at 8:51 AM | | Comments (0)
        

June 8, 2010

Solo Cup closing part of sad manufacturing trend

Solo Cup gets a few Brownie points for giving hundreds of employees two years' notice that they'll be losing their jobs. The company announced today that it will close its Owings Mills plant in 2012. Employees getting put out of work rarely get this much warning. It's a small consolation, but it's something. With luck and compassion people will get decent severance packages, too.

Ironically, Solo's early warning may be a sad commentary on the economy and the manufacturing economy especially. Downsizing companies normally don't like to telegraph their intentions. That's because employees will start quitting to find longer-term positions, which can complicate operations in the meantime. If you want to run until 2012 and half the workers quit in 2011, you've got a problem.

But in this economy the prospects for finding decent positions for manufacturing workers may be discouraging enough that Solo figured it could take the risk. As the Labor Department graph below shows, Maryland manufacturing employment is about down to 100,000, half of what it was two decades ago. With a slow recovery from a recession and national unemployment near 10 percent, Solo apparently figures it will keep most of the workers at the closing plants until the bitter end. marylandmanufacturing.gif

Posted by Jay Hancock at 6:59 PM | | Comments (8)
Categories: Manufacturing
        

June 7, 2010

To help biz, Ehrlich should cut personal income tax

I understand why Republican gubernatorial candidate Bob Ehrlich is promising to cut Maryland's sales tax and corporate income tax. It's good politics. Gov. O'Malley's increase in the sales tax from 5 percent to 6 percent affects every Marylander, although I doubt many notice it until Ehrlich reminds them. Cutting the corporate income tax is a symbolic sop to business. Corporate income taxes don't raise much money. Cutting the rate wouldn't cost the state treasury very much, and whoever is governor a year from now will have big budget headaches.

But if Ehrlich really wanted to help small business, as he says he does, he would campaign to cut the individual income tax. Even after Maryland's "millionaire tax" surcharge expires this year, the state will have one of the highest personal income taxes in the country when you count the state rate combined with the local "piggyback" tax.

Why does the personal rate matter to business? Most small businesses are partnerships, S corporations or limited liability companies that pay tax at the personal rate of their owners. The tax is owed whether or not any money is taken out in the form of dividends. Numerous small-biz owners retain earnings inside the company to invest in growth, and yet they have to pay high taxes on the earnings out of personal funds.

The individual income tax is a much bigger challenge for Maryland's ability to attract and keep small businesses than the sales tax. The sales tax is basically irrelevant to small business.

Posted by Jay Hancock at 9:13 AM | | Comments (8)
Categories: Taxes
        

June 4, 2010

Speaking of underfunded pensions...

Posted by Jay Hancock at 4:58 PM | | Comments (0)
Categories: Slo-mo fiscal train crash
        

Adjusting pension formula not a contract violation

Government-employee unions have a long history of trying to claim that almost any downward adjustment in the FUTURE accrual of pension benefits is a contract violation. Baltimore police and fire unions, reports Julie Scharper, say adjustments proposed by the city "constitute a violation of their contract." Of course they don't. A casual glance at the private-sector landscape shows hundreds of corporations scrapping or adjusting future pension-benefit credits, including for unionized workers.

Pension sponsors have an obligation to pay employees and retirees for benefits earned under the formula up to the present. But they have no obligation to continue that formula, no matter how unaffordable, for ever and ever. Here's the language from decision by the U.S. Court of Appeals, First Circuit, in Parker v. Wakelin, a Maine case..

Finding no unmistakable intent on the part of the Maine legislature to create private contractual rights against the reduction of pension benefits prior to the point at which pension benefits may actually be received, we hold that the Maine amendments do not violate the Contract Clause with regard to any of the plaintiffs.

Proposed changes in Baltimore's police and fire pensions wouldn't change benefits for current retirees, and they wouldn't change the pension vesting that has already occurred for people still working. But the unions don't like to make that distinction.

Posted by Jay Hancock at 8:39 AM | | Comments (29)
Categories: Slo-mo fiscal train crash
        

June 3, 2010

Want a year of free rent? Stop paying your mortgage

Calculated Risk notes that the increasing time it takes a bank to evict you from your home after you stop paying your mortgage is pumping up the incentive to default. Thanks partly to the glut of defaults and partly to government programs to delay eviction, it takes more than a year, on average, to get kicked out of your house after your last mortgage payment. So if you're struggling anyway, why not just stop paying the note and enjoy the free rent?

CR quotes the NYT:

The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics. ... More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property ...

And he quotes a Bank of America executive:


"There is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers."

Posted by Jay Hancock at 8:13 AM | | Comments (12)
Categories: Real estate
        

June 2, 2010

Compensation for bumped air passengers may rise

As somebody who spent three hours sitting inside a jet sitting on a runway a couple weeks ago (the plane hit a bird on landing and they had to fix the dent), I'm paying extra attention to airline regulations. In theory raising the bumping penalty for air carriers should give them incentive to bump fewer folks. In practice??? Here's a report from Reuters:

(Reuters) - Maximum compensation for bumping passengers off oversold flights would rise to $1,300 under a U.S. government proposal released on Wednesday.

The Transportation Department plan would also expand its runway delay program to overseas airlines, making them comply with the same requirements as domestic counterparts for ground delays exceeding three hours.

Current bumping fees range from $400 to $800, depending on whether an alternative flight is available and whether the trip is domestic or international service.

Posted by Jay Hancock at 1:41 PM | | Comments (1)
Categories: Airlines
        

Is Columbia the least bohemian city in America?

Tyler Cowen tackles a question from a reader: "I have a blog request: a list of the top ten least bohemian cities in the world. Why are some cities more conducive to bohemian lifestyles than others? Does rent control result in more or less of this?"

Tyler suggests San Antonio, El Paso and Atlanta for the United States. Others suggest Lancaster, Pa. and Lynchburg, Va. I would throw in Colorado Springs. All of these choices make sense under the idea that non-bohemian = conservative, especially religiously conservative, which is probably a useful shortcut. But I say: Don't overlook liberal or apolitical suburbs and exurbs.

To me bohemian means garret apartments, low-rent arts scenes, weird music and above all an urban, youthful street scene of clubs, galleries, used-book stores, restaurants and residences in very close proximity. Never having been there, I would guess that San Antonio and El Paso have at least a small share of this vibe. For sure Atlanta does. Any place with a traditional "downtown" has high odds of having a bohemian presence.

For anti-bohemias I would suggest looking at places without traditional downtowns: ie., Columbia, Maryland. For all its reputed liberal politics, Columbia is a swath of green lawns, expensive stores, quarter-million-dollar dwellings and respectable two-income families. Maybe there are some starving artists, dive bars and poetry slams there, but I haven't seen them.

UPDATE: Commenter Neal pushes back:

I totally disagree! Columbia at its heart is very bohemian. It was almost totally homegrown. An arts culture was built in. It's a shame that many people blow it off - if you don't like the way it is, instead of complaining, you could make it better. We have the Festival of the Arts, Kinetic Sculpture Parade, the Boat Float, the Longfellow Parade. Like anyplace else, you have to look for the scene, and then get involved!
Posted by Jay Hancock at 11:32 AM | | Comments (37)
        

June 1, 2010

Great Recession means mental depression

Check out Gus Sentementes's story on the mental health toll of the economic downturn and slow recovery. Employee-assistance providers told Gus that requests for help rose about 10 percent and that reports of employee anxiety rose by a similar amount.

But here's the thing: EAPs are provided by employers, which means that for the most part the people using them are employed. The 15 million unemployed Americans generally don't have access to these programs and wouldn't be captured in the EAP data. If you think employed people are anxious, how do you think the unemployed feel? The unemployed who don't have private health insurance, let alone mental-health services? As Gus reports, the number of Marylanders using mental health services through Medicaid, the program for low-income folks, has popped 13 percent.

Here's a 2003 Hancock column on unemployment and depression:

ON A RECENT visit to an inpatient psych unit, it becomes clear that several convalescents have more in common than spiritual anguish and labels culled from the Diagnostic and Statistical Manual of Mental Disorders.

They are unemployed.

"I'd be a lot better if I had a job," says one highly intelligent, credential-laden man, his crisis triggered by a paycheck deficiency.

Another patient lost a blue-collar slot as part of the great diaspora of U.S. factory jobs to Mexico, China and beyond.

Because Prozac and Zoloft were not conversation staples in his circle, despair crept up without announcing itself. The pronouncement of "severe depression" after too many leaden days came as a revelation.

But involuntary unemployment and depression, the medicos tell us, often go together like graveyards and darkness.

Jobs describe us. They fill the existential void, often giving much of the meaning to our brief visit on Earth. Blaise Pascal said all human unhappiness can be blamed on man's inability to sit quietly in a room. Having to sit in a room while the rest of the world creates, produces and earns, however, can be another form of misery.

Grief comes from loss, and "when we look at loss, it can be experienced in a variety of ways - where it's the loss of a relationship, where it's the loss of a job, where it's the loss of financial resources," says Dr. Thomas Koenig, assistant professor of psychiatry and behavioral science at the Johns Hopkins University's medical school.

"A lot of folks tend to define themselves by their professions, by the work that they do, so there's the loss of that role" after a layoff, he added. "There's also the loss of the role of the breadwinner, the role in the family."

Unemployed men get depressed more than unemployed women.

It is important to distinguish between full-blown clinical depression and what Koenig calls the "demoralization" that accompanies setbacks, although the frontier separating them may not be as neat as doctors seem to think.

But depression seems to be a threat for almost anybody who is without a job and wants one. An Australian study published three years ago found that 30.9 percent in a sample of unemployed people suffered anxiety and depression requiring medical treatment, compared with 14.6 percent for an employed group.

Of course, if lacking a job makes you depressed, being depressed fetters your ability to find and keep a job.

"It's going in both directions, I think it would be safe to say," says Dr. Mary Whooley, an associate professor of medicine at the University of California in San Francisco. She co-authored a study showing depression increased one's odds of being unemployed. "Patients can really end up in a downward spiral."

The U.S. unemployment rate in July was 6.2 percent, close to a nine-year high.

I am convinced that distress associated with the economic slowdown and the 2001 terrorist attacks generated the high medical bills that drove Columbia-based Magellan Health Services, the country's biggest mental-health insurer, into bankruptcy.

Describing problems is easier than prescribing solutions. Prohibiting layoffs is not the answer to unemployment and unemployment despair. Flexible labor laws enable layoffs, but flexible labor laws also are key to economic growth, which is the unemployment antidote. Europe has shown that if companies can't fire people, companies don't add jobs.

But layoffs are not inevitable. Corporate bosses invariably portray job cuts as the mechanical result of uncontrollable forces, and often they are. Layoffs are usually a choice, however, not a necessity. They are not without benefits; often they pave the way for national productivity growth and higher per-capita incomes.

But they are a choice.

One great void in modern culture is the fading of noblesse oblige, the duty of benevolent behavior toward the less fortunate that once was laid upon the privileged. The left, which rejects paternalism as an opiate of oppression, is as much to blame as the right, which preaches the dividends of self-interest.

But the duty is there. To whom much is given, Mr. Executive, much is expected. Next time your finger touches the layoff trigger, consider unemployment and the odds of clinical hopelessness.

And for those looking for jobs, sometimes the greatest comfort in distress is knowing others share your plight. According to the Bureau of Labor Statistics, there are 9.1 million of you.

Here's wishing that some steady, paid labor, befitting your training and expectations, soon gets you out of your room.

Posted by Jay Hancock at 8:15 AM | | Comments (2)
Categories: The Great Recession
        
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About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Tuesdays and Sundays.
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