issue: Housing

Do Americans Think Their Kids Will Do Better?

Posted on by The Progressive Policy Institute

Kevin Drum notes my last post and then wonders, “What I’m more curious about is what this looked like in the 50s, 60s, and 70s. Was optimism about our kids’ futures substantially higher then?”

The results I showed were mostly from a fantastic database of polling questions called “Polling the Nations”, which I recommend to everyone (though it’s not free, it’s not that expensive relative to other resources).  That’s why they only start in the mid-80s, and there’s a gap between the mid-00s and the two or three polls I cite from this year and last (my look at this question was a few years ago).

Anyway, Kevin’s query reminded me that there’s another compilation of polling questions that is also amazing—the book, What’s Wrong, by public opinion giants Everett Carll Ladd and Karlyn Bowman.  And it’s a free pdf.

So, let me add some results to those I posted before.  I’m focusing, to the extent possible, on questions that ask parents about their own children.  When people are asked about “kids today” instead of their own kids, they are much more likely to be Debbie Downers—a phenomenon that journalist David Whitman dubbed the “I’m OK, They’re Not” syndrome, which is much more general than questions about children’s future living standards.  Also, let’s be careful to distinguish between levels and trends.

First, let’s look at the confidence parents have that life for their children will be better.

Percentage of parent confidence that life for their children will be better
Year Very confident Fairly confident Not at all confident
1973 26% 36% 30%
1974 25 41 28
1975 23 39 32
1976 31 39 25
1979 25 41 29
1982 20 44 32
1983 24 38 33
1988 20 45 28
1992 17 46 31
1995 17 44 34
2000 46* N/A 48*
Source: Roper Starch Worldwide; *Washington Post/Kaiser Family Foundation/Harvard

That last one shouldn’t be directly compared with the others—not only did it only offer a yes-or-no response, it was also asked of all adults.  More on that in a sec.  What we see from the Roper surveys is a fairly steady decline in solid confidence, but not much of a trend in pessimism.

The main dynamic is that parents have moved from being “very” confident to “only fairly” confident.  It looks like there may have been a small decline in optimism from the late 1980s through the mid-1990s.  But it’s interesting that from 1973 to 1995, between 61percent and 70%percent were at least fairly confident that their kids would be better off.

The Washington Post polling result provides a nice opportunity to look at the “I’m OK, They’re Not” pattern, since all adults were asked the question, even though fewer than half had children under 18 in their household.  In a poll my employer* commissioned from Greenberg Quinlan Rosner Research and Public Opinion Strategies, we asked parents about their expectations for their children’s living standards.  We asked people who had no children under 18 at home about “kids today.”

Pooling everyone together, 47 percent of adults said kids would have higher living standards. But the parents were much more optimistic about their own children, with 62 percent saying their kids’ living standards would improve.  So the Washington Post result might have been right in the range of the Roper results had the question been asked only of parents.
Other polls have asked whether parents think their children will be better off when they are the same age:

Percentage of parents that think their children will be better off when they are the same age
Year Better off financially Not better off
1981 47 43
1982 43 41
1983 44 45
1985 62 29
1986 74 19
1991 66 25
1994 47* 39*
1995 54 39
1996 52 39
1996 51‡ N/A
1997 51‡ N/A
1999 67‡ N/A
Sources: ABC News/Washington Post;  *Newsweek; ‡Pew Research Center

So optimism declined between the mid-1980s and early-1990s, recovered starting in the mid-1990s, and generally remained above early 1980s levels (when the economy was in recession).  Except for 1983 majorities or pluralities hold the optimistic position.

Another series of polls asked parents whether their children will have a better life than they have had.  They also indicate a decline in optimism from the late 1980s to the early 1990s and a subsequent rebound:

Parents outlook on their children’s life
Year Better life About as good
1989 59% 25%
1992 34 33
1995 46 27
1996 50 26
2002 41* 29*
Sources: BusinessWeek; *Harris Poll

Strong majorities thought the children would have as good a life as them or better, and while more people thought their kids would have a better life than thought they would have a worse life, optimism failed to win a majority of parents in a number of years.  The trends appear to reveal a decline in optimism from the mid- or late-1990s to the early 2000s.  Considering all of these trends thus far, a fairly clear cyclical pattern is emerging, as Kevin observed in his post.

The early 2000s dip also shows up in Harris Poll questions asking whether parents feel good about their children’s future:

Percentage of parents that feel good about their children’s future
Year Feel good
1997 48%
1998 65
1999 60
2000 63
2001 56
2002 59
2003 59
2004 63
Source: Harris Poll

The dip is revealed to be related to the 2001 recession, as optimism rebounded thereafter, again following the business cycle. Again, solid majorities generally take the optimistic position.

The longest time series available asks parents whether their children’s standard of living will be higher than theirs.  Unfortunately, it appears that most of these polls ask the question of adults without children too:

Percentage of parents that believe their children will achieve a higher standard of living
Year Higher standard of living Lower standard of living
1989 52% 12%
1992 47 15
1993 49 17
1994 43 22
1994 45* 20*
1995 46 17
1996 47* N/A
1998 55* N/A
2000 59* N/A
2002 61* N/A
2004 53* N/A
2006 57* N/A
2008 53* N/A
2009 47/62† N/A
2010 45‡ 26‡
Sources: Cambridge Reports/Research International; *General Social Survey; †Economic Mobility Project; ‡Pew Research Center

Once again the cyclical pattern emerges, though it is not quite as clear in the mid-2000s.  Optimism is far more prevalent than pessimism in every year, reaching majorities from the late 1990s until the current recession.  Even today, optimism is no lower than in the mid-1990s, and the EMP poll implies that when looking just at parents with children under 18 living at home, solid majorities continue to believe their kids will have a higher living standard.

Taken together, there is very little evidence that a supposed stagnation in living standards is reflected in Americans’ concerns about how their children will do.  The survey patterns show that parental optimism follows a cyclical pattern, generally is more prevalent than pessimism, and did not decline over time.  In fact, we can compare beliefs in 1946 to 1997 for one question—whether “opportunities to succeed” (1946) or the “chance of succeeding” (1997) will be higher or lower than a same-sex parent’s has been:

·       Roper Starch Worldwide (1946)—64 percent of men said their sons’ opportunities to succeed will be better than theirs (vs. 13 percent worse); 61 percent of women said their daughters’ opportunities to succeed will be better than theirs (vs. 20 percent worse)
·       Princeton Religion Research Center (1997)—62 percent of men said their sons will have a better chance of succeeding than they did (vs. 21 percent worse); 85 percent of women said their daughters will have a better chance (vs. 7 percent worse)

As one would expect, mothers in 1946 believed their daughters would have more opportunity, but surprisingly that view was even more prominent in 1997.  And among men, there was very little change.  Notably, unemployment was slightly lower in 1946 than in 1997, so this isn’t a matter of apples to oranges.

Or even more strikingly, consider two polls asking the following question: Do you think your children’s opportunities to succeed will be better than, or not as good as, those you have? (If no children:) Assume that you did have children.
·       Roper Starch Worldwide (1939)—61 percent better vs. 20 percent not as good vs. 10 percent same (question asked about opportunities of sons compared with fathers)
·       Roper Starch Worldwide (1990)—61 percent better vs. 21 percent not as good vs. 12 percent same

While the 1939 question only refers to males, given the relatively low labor force participation of women at the time, it is perhaps still comparable to the 1990 question.  However, the unemployment rate was 17.2 percent in 1939 compared with 5.6 percent in 1990.  Still, the two are remarkably close.

OK, can we put this question to bed?  Americans believe their children will do as well or better than they have done, and this belief hasn’t weakened over time.  Now let’s get back to arguing about objective living standards rather than subjective fears about them.

* For the love of God, nothing you’ll ever read on my blog has anything to do with my job—there are people at Pew whose ulcers flare at employees’ side hustles like mine.

This item is cross-posted at ScottWinshipWeb.

Photo Credit: fiskfisk’s Photostream

A More Productive Path than Self-Immolation

Posted on by The Progressive Policy Institute

Everyone’s approvingly linking to this Edward Luce piece on “the crisis of middle-class America.” I want to set myself on fire.

Seriously, it’s discouraging to see so many people who should know better (because they’ve argued these points with me before) promoting this article.  I can’t think of another piece in the doomsday genre—and there are many—that gets it so consistently wrong. I’ll stipulate that none of the criticisms below are intended to minimize the struggles that many people are facing.  But it’s important to get this stuff right. Let me dive in, with Luce’s words in italics and my responses following:

Yet somehow things don’t feel so good any more. Last year the bank tried to repossess the Freemans’ home even though they were only three months in arrears.

The share of mortgages either in foreclosure or 3 or more months delinquent is 11.4 percent, which, because 30 percent of homeowners have paid off their mortgage, translates into 8 percent of homes. So the Freemans’ situation is typical of about one in twelve homeowners, or not quite 3 percent of households (since one-third rent).

Their son, Andy, was recently knocked off his mother’s health insurance and only painfully reinstated for a large fee.

Luce is arguing that there’s a new crisis facing the current generation. About 30 percent of those age 18 to 24 were uninsured in 2008 when the National Health Interview Survey contacted them.  I don’t have trends for that age group, but the share of Americans under age 65 without health insurance coverage was 14.7 percent in 2008, up from…14.5 percent in 1984.

And, much like the boarded-up houses that signal America’s epidemic of foreclosures, the drug dealings and shootings that were once remote from their neighbourhood are edging ever closer, a block at a time.

Well, the violent crime rate in 2008 was 19.3 per 1,000 people age 12 and up, down from 27.4 in 2000 and 45.2 in 1985.

Once upon a time this was called the American Dream. Nowadays it might be called America’s Fitful Reverie. Indeed, Mark spends large monthly sums renting a machine to treat his sleep apnea, which gives him insomnia. “If we lost our jobs, we would have about three weeks of savings to draw on before we hit the bone,” says Mark, who is sitting on his patio keeping an eye on the street and swigging from a bottle of Miller Lite. “We work day and night and try to save for our retirement. But we are never more than a pay check or two from the streets.”

The key question is, again, Is this worse than in the past? The risk of a large drop in household income has risen modestly, but people experiencing a drop end up much better off than in the past. For example, the risk of a 25 percent drop in income over 2 years has risen from 7 percent among married couples in the late 1960s to 14 percent in the mid-2000s (based on my computations from Panel Study of Income Dynamics data). But if you look at the average income of married-couple families after their 25 percent drop, it rose from $40,000 to $63,000 (in constant 2009 dollars).

Solid Democratic voters, the Freemans are evidently phlegmatic in their outlook. The visitor’s gaze is drawn to their fridge door, which is festooned with humorous magnets. One says: “I am sorry I missed Church, I was busy practicing witchcraft and becoming a lesbian.” Another says: “I would tell you to go to Hell but I work there and I don’t want to see you every day.” A third, “Jesus loves you but I think you’re an asshole.” Mark chuckles: “Laughter is the best medicine.”

Hmmm…just a typical American household…

The slow economic strangulation of the Freemans and millions of other middle-class Americans started long before the Great Recession, which merely exacerbated the “personal recession” that ordinary Americans had been suffering for years. Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the multiple is above 300.

Adjusting for household size and using the PCE deflator to adjust for inflation, median household income in the Current Population Survey rose from $29,800 in 1973 to $40,500 in 2008 (in 2009 dollars, again based on my compuatations).  Factoring in employer and government noncash benefits would show even more impressive growth.

 

In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start.

This is entirely a function of changes in the population composition (more Latinos) and in the share of employee compensation going to health insurance and retirement plans.

Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.

Nope. The evidence is ambiguous, but the best studies imply that intergenerational economic mobility hasn’t changed that much in the past few decades. Intra-generational earnings mobility has increased since the 1950s, though it has declined among men.

Alexis de Tocqueville, the great French chronicler of early America, was once misquoted as having said: “America is the best country in the world to be poor.” That is no longer the case. Nowadays in America, you have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy – even Britain on some measures. To invert the classic Horatio Alger stories, in today’s America if you are born in rags, you are likelier to stay in rags than in almost any corner of old Europe.

Tim Smeeding’s research based on the Luxembourg Income Study shows that in general Americans have higher incomes than their European counterparts as long as they are in the top 80 to 90 percent of the income distribution.  Below that, incomes are more comparable across countries, and the living standards of Americans look less impressive.  The US has comparable intergenerational earnings mobility to Europe, according to Markus Jantti’s research, except among men (but not women) who start out at the bottom.  In terms of occupational mobility, David Grusky’s research shows we’re as good or better as anywhere else, but this doesn’t translate into earnings mobility because we let people get rich or poor to a greater extent than other countries do. Jantti and Anders Bjorklund have estimated that Sweden would have the same mobility as the U.S. if the return to skill was as high there as it is here.  Finally, employer benefits further complicate how “bad” we look.

Combine those two deep-seated trends with a third – steeply rising inequality – and you get the slow-burning crisis of American capitalism. It is one thing to suffer grinding income stagnation. It is another to realise that you have a diminishing likelihood of escaping it – particularly when the fortunate few living across the proverbial tracks seem more pampered each time you catch a glimpse. “Who killed the ­American Dream?” say the banners at leftwing protest marches. “Take America back,” shout the rightwing Tea Party demonstrators.

The rise in income inequality is mostly about the top 5 percent of the top 1 percent pulling away from everyone else, and existing estimates overstate inequality and its growth by ignoring employer and government noncash benefits and possibly by ignoring different rates of inflation in different parts of the income distribution.

Unsurprisingly, a growing majority of Americans have been telling pollsters that they expect their children to be worse off than they are.

Totally wrong.  The key here is to only look at polling questions that ask people about their own kids, not kids in general.  Here are the relevant survey results I could find:

General Social Survey (1994)—45 percent said their children’s standard of living will be better (vs. 20 percent worse)
General Social Survey (1996)—47 percent
General Social Survey (1998)—55 percent
General Social Survey (2000)—59 percent
General Social Survey (2002)—61 percent said their children’s standard of living will be better (vs. 10% worse)
General Social Survey (2004)—53 percent
General Social Survey (2006)—57 percent
General Social Survey (2008)—53 percent
Economic Mobility Project (2009)—62 percent said their children’s standard of living will be better (vs. 10 percent worse)    (unlike GSS and PRC, asked only of those with kids under 18)
Pew Research Center (2010)—45 percent said their children’s standard of living will be better (vs. 26 percent worse)

BusinessWeek (1989)—59 percent said their children will have a better life than they had (and 25 percent said about as good)
BusinessWeek (1992)—34 percent said their children will have a better life than they had (and 33 percent said about as good)
BusinessWeek (1995)—46 percent said their children will have a better life than they have had (and 27 percent said about as good)
BusinessWeek (1996)—50 percent expected their children would have a better life than they have had (and 26 percent said about as good)
Harris Poll (2002)—41 percent expected children will have a better life than they have had (and 29 percent said about as good)

Harris Poll (1997)—48 percent felt good about their children’s future
Harris Poll (1998)—65 percent felt good about their children’s future (17 percent N.A.)
Harris Poll (1999)—60 percent felt good about their children’s future (15 percent N.A.)
Harris Poll (2000)—63 percent felt good about their children’s future (17 percent N.A.)
Harris Poll (2001)—56 percent felt good about their children’s future
Harris Poll (2002)—59 percent felt good about their children’s future
Harris Poll (2003)—59 percent felt good about their children’s future
Harris Poll (2004)—63 percent felt good about their children’s future

Pew Research Center (1997)—51 percent said their children will be better off than them when they grow up
Pew Research Center (1999)—67 percent said their children will be better off than them when they grow up

Bendixen & Schroth (1989)—68 percent said their children will be better off than they are
Princeton Religion Research Center (1997)—62 percent of men said their sons will have a better chance of succeeding than they did; 85 percent of women said their daughters will have a better chance
Angus Reid Group (1998)—78 percent said children will be better off than them
Washington Post/Kaiser Family Foundation/Harvard (2000)—46 percent said they were confident that life for their children will be better than it has been for them
Economic Mobility Project (2009)—43 percent said it would be easier for their children to move up the income ladder
Economic Mobility Project (2009)—45 percent said it would be easier for their children to attain the American Dream

Also, polls consistently show that Americans say they have higher living standards than their parents.

And although the golden years were driven by the rise of mass higher education, you did not need to have graduated from high school to make ends meet. Like her husband, Connie Freeman was raised in a “working-class” home in the Iron Range of northern Minnesota near the Canadian border. Her father, who left school aged 14 following the Great Depression of the 1930s, worked in the iron mines all his life. Towards the end of his working life he was earning $15 an hour – more than $40 in today’s prices.

Thirty years later, Connie, who is far better qualified than her father, having graduated from high school and done one year of further education, makes $17 an hour.

It’s not valid to compare her pay mid-career to her father’s at the end of his career—and also, how much work experience does she have relative to him?  Did she take time off to raise kids?

The pace of life has also changed: “We used to sit around the dinner table every evening when I was growing up,” says Connie, who speaks with prolonged vowels of the Midwest. “Nowadays that’s sooooo rare.”

Time-use surveys show that while parents spend more time working (because of mothers) than in the past, they do not spend less time with children.  They spend less time doing things by themselves.

Then there are those, such as Paul Krugman, The New York Times columnist and Nobel prize winner, who blame it on politics, notably the conservative backlash which began when Ronald Reagan came to power in 1980, and which sped up the decline of unions and reversed the most progressive features of the US tax system.

Fewer than a tenth of American private sector workers now belong to a union. People in Europe and Canada are subjected to the same forces of globalization and technology. But they belong to unions in larger numbers and their health care is publicly funded.

Though unionization has declined markedly in most of these countries, and their health care policies are increasingly becoming too costly.  Also, most of the decline in unionization in the U.S. occurred before Reagan took office.

More than half of household bankruptcies in the US are caused by a serious illness or accident.

This is bad Elizabeth Warren research—she counts a bankruptcy as being “caused” by illness or accident if one was reported, but the household could have been in serious debt before these occurred.  At any rate, bankruptcies are exceedingly rare (under 1 percent of households—see Figure 13).

Pride of place in Shareen Miller’s home goes to a grainy photograph of her chatting with Barack Obama at a White House ceremony last year to inaugurate a new law that mandates equal pay for women.

As an organizer for Virginia’s 8,000 personal care assistants – people who look after the old and disabled in their own homes – Shareen, 42, was invited along with several dozen others to witness the signing.

Ah…another representative household…

More and more young Americans are put off by the thought of long-term debt.

Evidence?

Had enough?  I have speculated that to the extent economic insecurity has increased, it reflects the impact of a negativistic media (amplified by gloom-and-doom liberalism).

Picture
Pieces like Luce’s—and the blog posts it generates—affect consumer sentiment. Ben Bernanke and Tim Geithner aren’t the only people who can inadvertently talk down the economy.

This item is cross-posted at ScottWinshipWeb.

Israeli Settlements in the West Bank: An Explainer

Posted on by The Progressive Policy Institute

Last Thursday morning, I was perched and staring at Tel Aviv in the distance to my left, Haifa to my right, and the vast Mediterranean Sea that seemed to separate them. My crow’s nest view was from a lookout point from the Israeli settlement of Alfei Menashe, which is situated clearly inside the West Bank and guarded by the controversial barrier that separates Israel from the Palestinian territories (I had to chose my words carefully there — the Israelis call it a “security fence” and the Palestinians have far less PC terms for it. In the name of impartiality, I’ll go with “controversial barrier.”)

Israeli settlements in the West Bank have been a lightening rod for criticism and division. The major settlement push took hold under Menachem Begin, Israel’s prime minister from 1977-83, who supported Israeli construction in the West Bank and Gaza Strip as a way to consolidate Israel’s territorial gains in 1967’s Six Day War. In the present context, they’ve become a key issue as the Israelis and Palestinians negotiate peace — as Israelis continue to build new settlements or expand existing ones, it appears as though Israel’s government is interested only in tightening its grip on Palestinian territories, not giving them back.

Construction in and around Israeli settlements came to the forefront in George W. Bush’s 2003 “Roadmap for Peace,” which called for a “freeze on settlement expansion.” Ariel Sharon, Israeli prime minister at the time, suggested that such a freeze was impossible due to the need for settlers to build new houses and start families. The issue has remained controversial ever since.

Occasionally, this family issue has been falsely referred to as “natural settlement growth.” In reality, “natural growth” is completely different. Here’s how it works:  legal Israeli settlements are allotted a certain municipal boundary, but construction initially takes place on a small percentage of the designated land. “Natural growth” means that over time, the settlement expands to these full territorial boundaries. As construction continues, particularly for settlements deep on the West Bank, it certainly does look like an Israeli land grab.

In November, the Netanyahu government announced a 10-month moratorium on settlement construction, with an exemption for East Jerusalem. It’s due to be lifted in September.

The latest flare-up occurred during Vice President Joe Biden’s trip to Israel in March when the Israeli Interior Ministry announced the approval of construction of 1,600 new apartments in East Jerusalem. (NB: The Interior Ministry is headed by right-wing Shas Party member Eli Yishai, a rival to PM Netanyahu. The Interior Ministry’s announcement was likely designed to embarrasse Netanyahu during Biden’s visit.)

So, how do we sort this out? What’s the real concern with settlements, and how is the issue leveraged for political posturing?

The first thing to note is that certain settlement construction is more important (worrying) than others. Growth should only be highly controversial in settlement areas that will, one day, certainly be evacuated and turned over to Palestinian control.

If you look at a map of the West Bank, this includes the row of small settlements along the spine of the Jordan River and all those scattered in a seemingly random pattern throughout the heart of the territory. Jewish inhabitants in these locations number anywhere from a handful to a few thousand, and Israeli governments (yes, even those lead by Bibi) realize that they will not be part of Israel after a peace deal. Construction here in any form is unacceptable.

The biggest problem in this regard is Ariel, a settlement some ten miles behind the 1949 Green Line border. With about 80,000 Jewish residents living in relatively new apartment blocks that extend to its full municipal boundaries, both sides acknowledge moving them is probably more trouble than it’s worth. That’s why “new” construction in a place like Ariel technically isn’t that controversial–Ariel’s boundaries are firm, so construction won’t expand Ariel’s reach into the West Bank.  Most likely, Ariel will be walled off as a non-contiguous part of Israel (with some sort of a land-bridge to the “mainland”), just like Kaliningrad is separated from the rest of Russia. Or Alaska from the US. Furthermore, a Palestinian state will be compensated with land elsewhere for Ariel.

Moreover, construction in many — though not all — of the settlements in East Jerusalem is less of a big deal than it seems. Certain settlements, like Alfei Menashe in the first paragraph of this post, will very likely become part of Israel in a peace deal. Settlements in Jerusalem, like the Gilo settlement in the city’s south, may indeed be over the Green Line, but it, like Ariel, is a well-developed community that has been considered a regular Jerusalem suburb for decades. It’s clear to both sides that Alfei Menashe and Gilo — communities that have reached their allotted territorial capacity and have no more room for “natural growth”– will become permanent parts of Israel in a peace deal, and, critically, that the Palestinian state will be compensated with land elsewhere.

In other words, continued construction in a place like Gilo is controversial only because it is symbolic and plays well in the media. In reality, building a new apartment block right in the middle of a settlement technically violates the general construction “freeze,” but in reality isn’t a strategic expansion. Even so, Vice President Biden must severely object to these letter-of-the-law violations because they smack of Israeli tone-deafness to this political sensitivity.

That means that when we hear of construction in settlements, we have to be careful to separate the acceptable-but-tone-deaf construction from the strategically unacceptable. Greater understanding of the strategic and tactical realities of settlements would help diffuse an intense public sensitivity to a highly complex issue.

Brainwashed

Posted on by The Progressive Policy Institute

“Flip-flopping” on major issues can be hazardous to your political health. “Flip-flopping” when you’ve branded yourself as a brave principled “maverick” can be especially dangerous. And “flip-flopping” on grounds that you were confused about the issue in question is really, really bad, particularly when you are on the far side of 70.

That’s why John McCain may have ended his long political career the other day when he responded to attacks by primary challenger J.D. Hayworth on his support for TARP (popularly known from the beginning as the “Wall Street Bailout”) by claiming he was misled by the Fed Chairman and the Treasury Secretary into thinking the bill was about the housing industry, not Wall Street:

In response to criticism from opponents seeking to defeat him in the Aug. 24 Republican primary, the four-term senator says he was misled by then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. McCain said the pair assured him that the $700 billion Troubled Asset Relief Program would focus on what was seen as the cause of the financial crisis, the housing meltdown.”Obviously, that didn’t happen,” McCain said in a meeting Thursday with The Republic’s Editorial Board, recounting his decision-making during the critical initial days of the fiscal crisis. “They decided to stabilize the Wall Street institutions, bail out (insurance giant) AIG, bail out Chrysler, bail out General Motors. . . . What they figured was that if they stabilized Wall Street – I guess it was trickle-down economics – that therefore Main Street would be fine.”

What makes this claim especially astonishing is that McCain was rather famously focused on TARP at the time. He suspended his presidential campaign to come crashing back into Washington to attend final negotiations designed to get enough Republican support for TARP to get it passed. He was, by all accounts, a very passive participant in these talks, but it’s not as though he wasn’t there. And you’d think his memories of the event would be reasonably clear, since it probably sealed his electoral defeat.

It’s not obvious how McCain can walk this statement back. And in terms of the political damage he inflicted on himself, it’s hard to think of a suitable analogy without going all the way back to 1967, when Gov. George Romney (father of The Mittster) destroyed his front-running presidential campaign by claiming he had been “brainwashed” by military and diplomatic officials into erroneously supporting the Vietnam War. He never recovered from that one interview line. (Sen. Gene McCarthy, who did run for presidential in 1968, was asked about the Romney “brainwashing” by David Frost, and quipped: “I would have thought a light rinse would have been sufficient.”).

McCain has a more sizable bank of political capital than George Romney ever did, but in a primary contest where he was already in some trouble, the suggestion that he was brainwashed by a Republican administration into fundamentally misunderstanding the central national and global issue of the moment–not to mention the central current grievance of voters with Washington–could be fatal. It doesn’t help that it will vastly reinforce Hayworth’s not-so-subtle claims that McCain is a fine statesman whose time has come and gone, and is now losing it.

This item is cross-posted at The Democratic Strategist.

A Five-Billion-Dollar Canary

Posted on by The Progressive Policy Institute

Here in New York City, big numbers always dominate the local news. While it’s easy to talk about how Mike Bloomberg spent at least $90 million to squeak out a win in his race for a third term as mayor yesterday, these days the big number mentioned is $5.4 billion.

That’s the amount that local developer Tishman Speyer and investment powerhouse Blackrock spent to buy the huge Stuyvesant Town development in 2006, at the top of the real estate market. In turn, Tishman and and Blackrock turned around and packaged the promise of future rent flows from the complex as $4.4 billion in loans and commercial mortgage-backed securities (CMBS).

Since then, the Stuy Town project has been plagued by missteps. Promises to keep rates steady at rent-controlled levels — promises the joint venture had to make to get the city to agree to sell the property in 2006 — were almost immediately broken, with tenants being overcharged to the tune of $200 million. But with the downturn in the real estate market, defaults and late payments have risen at Stuy Town, endangering the new owners’ ability to meet their debt payments on the $3 billion in outstanding CMBS issued. People who claim to have looked at the finances claim Stuy Town only has enough liquidity to last through February. Even the eponymous Rob Speyer, co-chief executive along with his father, concedes the CMBS is going to require a restructuring.

In response, the Fitch ratings agency downgraded the CMBS bonds on Friday, and now says a default on the loans is likely.

While Stuy Town is unique in its size, it is not unique in its predicament. Real estate analysis firm Reis says the complex is indicative of the larger commercial real estate market:

About $26.64 billion of CMBS loans outstanding were 60 days or more past due last quarter, according to Reis. The default and delinquency rate rose to 4.52 percent from 0.8 percent a year earlier and 3 percent in the second quarter. Defaults may top 6 percent by year-end, the firm said.

This coming spike in defaults shows that even with the recent positive news — including last quarter’s 3.5% GDP growth — we’re not out of the woods yet. Most of that growth came from Recovery Act funds, including the “cash for clunkers” program and the increase in the first-time home-buyer’s credit. While this kind stimulus spending can provide an economic shot in the arm, it is not the basis for sustainable growth.

The collapse of the residential mortgage market (led by sub-prime mortgages losing value) was a big driver of the economic collapse of last year. The downturn that sends us into the second leg of a “W shaped recession” could be driven in part by the collapse of the commercial real estate market. Stuyvesant Town’s economic difficulties are a $5 billion canary telling us that things may get worse before they get better.