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Proviso Probe

Monday, September 29, 2008

WARNING: bailout bill could deprive schools and local gov't of property tax revenue

This weekend Congress and the Bush administration announced agreement on a bill to bailout financial sector companies that invested in mortgage-backed securities. The program is called the Troubled Asset Recovery Program (TARP). The current legislation is called the Emergency Economic Stabilization Act of 2008. See Washington Post (Lori Montgomery and Paul Kane). The cost of the initial legislation is $700 billion.

Seven hundred billion dollars is approximately $2,300 for every person in the country, including newborn babies, Alzheimer's patients and undocumented workers. If you divide the current national debt by the number of citizens, each person in the United States is already carrying approximately$32,300. See U.S. National Debt Clock. So, if this legislation passes your share of the national debt will be approximately $34,600.

The United States financial institutions have been troubled. So far this year the federal government has bailed out Bear Stearns ($30 billion), Fannie Mae and Freddie Mac ($200 billion) and AIG ($85 billion). See ProPublica.

The Emergency Economic Stabilization Act of 2008 could be catastrophic for school districts and other local government that relies on property taxes.

Mortgage-backed securities were assumed to be secure investments because they were backed by property. This has proven to be false for at least a few reasons.

1.Properties decreased in value, so the mortgage was worth more than the property in some cases.
2.Financial institutions are simply unable to sell all the properties upon which they foreclosed.
3.Some of the loans were fraudulent. The government and financial sector created a system whereby it was profitable to mortgage properties for amounts much higher than the true value of the properties.

The supporters of the bailout argue that it's necessary because financial institutions don't have the money they need to lend each other to keep the economic system operating. The financial institutions have lost confidence in each other to repay loans because they are carrying large amounts of bad debt. Because the financial institution won't loan to each other this means that companies in other sectors of the economy can't get the cash they need for their day-to-day operations.

Opponents of the proposed bailout are concerned it's a scam to get taxpayers to buy a bunch of assets at inflated prices. TARP does get taxpayers to buy assets at prices above current market price, but is it a scam? Opponents of TARP think it's unnecessary, won't work and/or not a good enough deal for taxpayers. There are also other objections, like the fact it rewards companies that made negligent decisions. TARP will transfer a huge amount of wealth from the middle class to people who are very rich.

My understanding of how TARP will work is that the federal government will buy troubled mortgage-backed securities. I assume this means the federal government will buy a large number of foreclosed homes.

What's the problem with the federal government owning a bunch of boarded-up homes? The federal government does not pay property taxes. There are communities with foreclosure rates of 20-30%. If the federal government buys the foreclosed homes then the schools and municipal government go without the property tax revenue they would normally collect.

I have read the contents of the Emergency Economic Stabilization Act of 2008 and see no references to propery taxes.

I expect that the people who wrote the bill are optimists who expect that the government buying property will cause property values to rise. The idea is that after holding the properties the government will be able to sell them for approximately the same amount as it payed for the properties. The people who wrote this bill do not foresee the federal government holding large numbers of properties for years and years.

I think it would be prudent to write the bill in such a way that school districts and other local taxing bodies would not be injured by the legislation.

The simplest fix is to require the financial institution selling the properties to continue to pay the property taxes until the federal government liquidates the property. This would be fair because the financial institution would be obligated to pay the property taxes absent the federal bailout. It seems grossly unfair to penalize school districts for greedy financial institutions writing bad loans.

This requirement should be amended into the Emergency Economic Stabilization Act of 2008 before it is passed into law.

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Friday, September 19, 2008

taxing wealth not work to pay for stock market bailout

Wall Street Journal (Deborah Solomon and Damian Paletta):
President George W. Bush warned that a "significant" amount of taxpayer funds will be put at risk with the government's plan to bolster shaky markets, but said intervention is necessary to keep the financial system from grinding to a halt. "This a pivotal moment for America's economy," Mr. Bush said Friday. "In our nation's history, there have been moments that require us to come together across party lines to address major challenges. This is such a moment."

Treasury Secretary Henry Paulson announced plans Friday to quickly set up a "bold" government program to take over troubled mortgage assets from financial institutions, along with other efforts to step up the purchase of mortgage-backed securities. "The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," Mr. Paulson said in prepared remarks for a press conference. (Read the full remarks)

The financial sector made vast sums of money writing bad loans. The penalty for this is supposed to be that the people who wrote the bad loans lose the money. However, the negligence of the people in the financial sector was on such a scale that allowing the bad actors to lose their money would be devastating to the entire U.S. economy.

To let the normal systems of accountability to play out would harm the U.S. economy, we’re told by the financial experts of the government and private sector. Few of these experts had sufficient expertise to avoid getting into the current mess. But these experts are charge, so we (the citizenry) have to implement their fix for their problem, lest it become our problem.

What’s the fix? The people who fight regulation vehemently now want a government bailout. Rich people and their rich companies screw-up and now they expect the government to borrow money to bailout negligence. Of course this borrowing will be paid back by a combination of taxes on the middle class and cuts in services.

One of the main benefits of the bailout will be to protect the value of the stock market. I have a suggestion about making this bail out a little more fair.

The United States should implement a tax on the transfer of stock and other investment mechanisms. The tax would be quite small, perhaps 0.1% of the total transaction. This is far less than middle class investors are expected to give to the great investment houses when they buy stocks. It would be a small cost for middle class investors.

Taxing individual stock transactions would also cause investors to do more long-term strategizing, since it would be harder to make a quick profit on a stock.

I wasn’t a big fan of John Edwards, but I did like his line, “Tax wealth, not work.” If regular folk are expected to subsidize the greed of the rich, it seems reasonable to ask for a tax code that does more to tax wealth instead of leaving the debt to be paid by the middle class through their income taxes.

If I get sufficient positive feedback on this proposal, I will contact the candidates for federal office and see what they have to say about the proposal. Proviso Township includes some of four Congressional districts IL-03 (Dan Lipinski), IL-04 (Luis Gutierrez), IL-05 (Rahm Emanuel) and IL-07 (Danny K. Davis). Illinois' senior U.S. Senator (Dick Durbin) is up for re-election in November. And the following candidates for President of the United States will appear on Illinois ballots: Chuck Baldwin (Constitution), Bob Barr (Libertarian), John McCain (Republican), Cynthia McKinney (Green), Ralph Nader (independent), Barack Obama (Democratic) and John Joseph Polachek (New Party).

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Tuesday, September 16, 2008

Alvarez and Peraica spar at Union League Club

Today at 8:00 AM Democratic and Republican candidates for Cook County State’s Attorney (CCSA) debated for an hour at the Union League Club. Afterwards both Anita Alvarez (Democrat-River Forest) and Cook County Commissioner Anthony Peraica (Republican-Riverside) appeared separately before the media in attendance. The forum was also hosted by Comcast which will broadcast (narrowcast) video of the forum Thursdays at 9 PM.

The debate questions were chosen by a moderator from questions submitted by the audience. The audience at the Union League Club appeared to over represent affluent “White” males. There were few African-Americans besides the journalists and people who did not meet the club’s dress code were excluded, per club policy.

Peraica emphasized corruption as a problem facing Cook County and said that the two systems of justice administered by the CCSA protects the corrupt from being prosecuted. There is one system of justice for the connected and the elite and another system of justice for everyone else. He promised to "audit the book, lock up the crooks" only once. He referred to Cook County as "Crook County" a few times.

Alvarez was less focused in her message. She asserted that she was qualified for the job and that the main change needed is for the CCSA to listen to communities more. Alvarez has been a Cook County assistant state's attorney for 22 years since graduating from Chicago-Kent Law School. In a restrained manner she drew attention to being a woman and being a Democrat.

Both candidates took jabs at each other. Peraica damned Alvarez as someone who didn't take risks in an organization that turned a blind eye to corruption. He described her as the candidate chosen by the political bosses who want the CCSA to remain ineffective at investigating and prosecuting corruption. Alvarez said Peraica was a "career politician" who ran for various offices. His legal experience is as a defense attorney, not a prosecutor. And she linked Peraica to problems on the county board, especially the board failing to provide adequate resources.

Peraica made four specific proposals that seemed noteworthy.

1. Peraica would eliminate prosecution of simple drug use and possession in favor of treatment and other options.

2. Peraica committed to cutting the CCSA budget by 2 ½ % per year for four years for a 10% decrease in his first term. He said cuts could be to high-salary managers who are politically connected and do little work. He also questioned if it made sense to have three ASAs in court for every felony case.

3. Peraica would not oppose ASAs organizing a union. Illinois Supreme Court rulings have held that a state’s attorney has a right to have a direct relationship with his/her ASAs without having the relationship mediated by a union. Peraica said the reason Dick Devine, the current CCSA, and Alvarez oppose unionizing is that they do want to continue to hire politically connected ASAs.

4. Peraica would offer house arrest monitored by ankle bracelet as an alternative to housing people at Cook County jail for people willing to pay for this option. This would both save Cook County the cost of incarceration and generate revenue. He used the example of a businessman convicted of DUI paying $200 per day instead of costing county government $100 per day.

Alvarez called for two specific changes.

She proposed creating CCSA satellite offices around Cook County, perhaps with facilities donated by municipal government or from the private sector. She contends having more offices would make the CCSA more responsive to community needs.

Alvarez also wants the Illinois legislature to pass a law that requires firearm owners to report lost or stolen firearms in 72 hours. She alleges that when law enforcement tracks the chain of ownership for firearms used in crimes there’s often an owner that had the firearm “stolen” but didn’t report it. She contends that this is how straw-man buyers transfer firearms from the legal market to the criminal market.

When asked about gun violence Peraica chose to speak about his plan for reducing the number of people incarcerated by not prosecuting simple drug use and possession.

Both Peraica and Alvarez favored the death penalty when asked how they would determine when to apply it. Alvarez would keep the existing committee system in place to decide whether to seek the death penalty. She said, “We seek the death penalty less than people think [we do].” Peraica said whether to have the death penalty or not was matter for the legislature to decide. He said he’d reserve it for the most heinous cases like five women killed in February in Tinley Park.

Alvarez and Peraica sparred over the size of the budget. Peraica characterized the CCSA budget as being $136 million per year. Alvarez rebutted this and said the budget was $90 million in the debate and $96 million in the press conference. Peraica’s figure included grant money. Alvarez’s figure was just the money allocated by the county board.

When questioned about using electronic devices to monitor sex offenders who have served their criminal sentences, Alvarez said she was open to the idea if it passed constitutional muster. Peraica expressed his doubt that imposing conditions after a criminal sentence was completed was constitutional and expressed little interest in the idea.

While no one in the audience asked about the demographics at the CCSA, Peraica did raise the issue in a question about reducing the number of cases overturned on appeal. Peraica told the audience only 6% of ASAs are African-American. This was an issue raised by Alvarez's African-American opponents in the Democratic primary, especially Ald. Howard Brookins.

IMO, the issue of hiring is one that the media people want to get the facts. Peraica repeated the allegation that the CCSA has a number of ASAs who were hired because of political connections, not an impartial evaluation of their legal talents. Alvarez denied this. Part of her denial was that every ASA had to graduate from law school. But she was more specific in the media session. Alvarez said she was the third round interviewer for every ASA and she said, "I don't think there is [hiring of relatives of the politically connected]." The media asked Peraica to provide examples of ASAs who were relatives of politicians. Peraica named Brookins and a name I didn't recognize. Both were hired a long time ago. Peraica also said people should visit JoinPeraica.com to find a list of Cook County employees.

If Peraica can show that Alvarez has hired multiple politically connected attorneys to be ASAs, she'll look clueless or dishonest. If Peraica can't show that the CCSA has been hiring the politically connected in the recent past, he's going to look like someone who always screams about corruption and either exaggerates the problem or he's clueless about how the corruption really works.

Thomas O'Brien is the Green Party candidate for Cook County State's Attorney. He did not participate in the debate or media availability. Although Peraica referenced O'Brien as being one of the high-paid, do-little managers working for the CCSA. Peraica alleged the Democrats want O'Brien, who continues to work as an ASA, in the race to siphon reform votes away from Peraica.

[UPDATE: I added a bunch of text Tuesday at 3:42 PM. And here are some of the traditional media outlets: Chicago Public Radio, Sun-Times (Abdon M. Pallasch), ABC7, and Chicago Tribune (Monique Garcia).]

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Thursday, September 11, 2008

how should police officers be insured against their misconduct?

TChris (Talk Left) wrote about the phenomenon of St. Paul demanding the Republican Party insure the city against expenses related to police misconduct.
This is an interesting policy question: Should cities be allowed to insure themselves against claims of police brutality? The City of St. Paul agreed to host the Republican National Convention on the condition that Republican Party arranged "to buy insurance covering up to $10 million in damages and unlimited legal costs for law enforcement officials accused of brutality, violating civil rights and other misconduct." Private donations were used to purchase the insurance. (link in original goes to AP article in the Minneapolis Star Tribune)

TChris takes the position that taxpayers will do a better job holding municipalities accountable than insurance companies.

This is a pretty good example of someone having ideological blinders. Insurance companies will hold municipalities accountable by either dropping them as customers or raising their insurance premiums.

I don't understand why you'd think voters would hold elected officials accountable for money paid directly for settlements but not money paid indirectly to insurance companies.

Here's what I like about insuring police officers against police misconduct. I like that the municipalities can (if they choose) write it into the contracts that the individual police officers are responsible for a share of their insurance. Police officers that have more problems would have higher premiums. Higher premiums would provide a financial incentive for bad cops to get out of police work.

After seeing the ineffectiveness of the Cook County State's Attorney in holding violent, lying, messed-up-in-the-head cops accountable, I'm willing to let the free market have a role in holding bad cops accountable too.

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Proviso has made a national top twenty list!

Citizens for Responsibility and Ethics in Washington (CREW) (organization website) has named Congressman Dan Lipinski as one of the twenty most corrupt members of Congress in 2008 (write-up). Lipinski represents the following Proviso communities: Brookfield, LaGrange Park, North Riverside and the southern portions of Forest Park and Westchester.
Rep. Dan Lipinski is a second-term member of Congress representing Illinois’ 3rd congressional district. Rep. Lipinski’s ethics issues stem from the outside employment of a top Washington D.C. congressional aide.

Jerome R. Hurckes

In January 2005, after serving as district director for former Rep. William Lipinski, Jerome “Jerry” Hurckes became chief of staff in the district office of Rep. Dan Lipinski, who replaced his father.

Since 1999, Mr. Hurckes has served as an elected member of the Village of Oak Lawn Board of Trustees. In that capacity he ran a state campaign account called Friends of Jerry Hurckes. Both former Rep. William Lipinski’s state PAC and the Dan Lipinski for Congress Committee have donated to Friends of Jerry Hurckes. Rep. Dan Lipinski serves on the House Transportation Committee, and companies with business in front of the committee, have donated to Mr. Hurckes’ campaign committee.

In his capacity as a local elected official, Mr. Hurckes has claimed responsibility for bringing federal funds to Oak Lawn. During an Oak Lawn board meeting in March 2008, Mr. Hurckes claimed that the village did not need to hire a lobbyist because he served as a de facto lobbyist. Mr. Hurckes said that he was "responsible for helping secure over $4 million for the Village of Oak Lawn ... responsible for helping obtain the funding for the Oak Lawn Children Museum ... [and] responsible for funding for emergency light systems," but Mr. Hurckes is not a registered federal lobbyist.

Given that Mr. Hurckes is the most highly paid staff member in Rep. Lipinski’s office, that his position is a full-time job and is generally considered a “senior staff” position, the fact that Mr. Hurckes’ salary is just under the figure that would make him “senior staff” suggests that Rep. Lipinski is paying Mr. Hurckes a salary under this limit precisely so that he can earn a substantial outside income. As a result, the House Ethics committee ought to investigate whether Rep. Lipinski and Mr. Hurckes are attempting to end-run the outside income restrictions.

By serving as a member of the Village of Oak Lawn Board of Trustees and admitting that he has been the Board’s “defacto lobbyist,” Mr. Hurckes is violating the prohibition against congressional staff serving as lobbyists. Mr. Hurckes also likely violated the prohibition against using House resources to perform the duties of his local office. And, by telling the Board of Oak Lawn that it did not need to hire a lobbyist because he was handling the city’s congressional issues and by stating that he had helped secure funding for projects in Oak Lawn, Mr. Hurckes clearly used his position in the House to provide special treatment to his constituents and encouraged the notion that his constituents would receive preferential treatment from Rep. Lipinski’s congressional office. Finally, by accepting money for his local electoral campaign from companies with interests before Rep. Lipinski, Mr. Hurckes is using his position as a congressional staff member to accept benefits under circumstances which might be construed by reasonable persons as influencing the performance of official duties in violation of House rules.

Lipinski has two opponents on the ballot in November: Michael Hawkins (Republican) and Jerome Pohlen (Green).

Jerry Hurckes is not a nice person.

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