NewGeography.com blogs

Of the three monitors established by the legislation that created the Troubled Asset Relief Program (TARP), only one has the authority to prosecute criminals. That is the Office of the Special Inspector General (SIGTARP) whose motto is “Advancing Economic Stability through Transparency, Coordinated Oversight and Robust Enforcement.” The Special Inspector General in charge, Neil Barofsky, told Congress before the recess that he was by-passing the Rogue Treasury to get answers directly from TARP recipients about what they are doing with the bailout money. Now, SIGTARP has set up a hotline (877-SIG2009) for citizens to report fraud or “evidence of violations of criminal and civil laws in connection with TARP.” To date, they have received 200 tips and launched 20 criminal investigations.

What started out as a bailout costing $750 billion quickly turned into $3 trillion – an amount about equal to the U.S. government’s 2008 budget. This week, SIGTARP released a 250-page report in an attempt to place “the scope and scale [of TARP] into proper context” and to make the program understandable to “the American people.” I can’t recommend that you read a report of that length, or even that you download it (more than 10 megabytes) unless you have broadband internet access. (In fact, I don’t understand what makes them think that the American people are going to understand anything that takes 250 pages to explain… Isn’t over-complicating one of the problems they want to solve?) You can get all the high points in Barofsky’s statement to the Joint Economic Committee, which is only 7 pages and a few hundred kilobytes. If you have more time than patience, you can watch the testimony on C-SPAN.

I applaud the hard work of the SIGTARP to provide oversight to Treasury even though they are “currently working out of the main Treasury compound.” Let’s hope they can break free of the hazards associated with the self-regulation that got us into this financial mess in the first place.

Kudos to the Daily Beast for doing its homework and exposing the blatant hypocrisy behind green-tinged celebrity. People like Gore, Streisand, and Madonna have been filling airwaves with exhortations to pitch in and save the planet while living the good life that is supposedly destroying it. Gore himself has put forth a proposal that Professor William Nordhaus has said would ruin the economy. One way for these Green celebs to reduce their carbon dioxide emissions would be to have them stop blowing so much hot air on the topic. There is also the option of listening to the words of Freeman Dyson and stop viewing this thing as a matter of faith. These people should really look more closely at their own lifestyles before telling us how to live. It would be nice if a little of the vitriol could be removed from the debate and we could have a reasonable look at the possible options. Our world and economy are too important.

The Housing & Economic Recovery Act of 2008 was passed last August. It created the HOPE for Homeowners Program, which the Congressional Budget Office estimated would help 400,000 homeowners to refinance their loans and stay in their homes. Here's a stunning revelation: According to the Federal Housing Authority (FHA), in the first six months since the law was passed, exactly one (1) homeowner refinanced under the program!

You can listen to the story on NPR, "Investors Support Overhauling Homeowner Program". One such investor, PIMCO, supports programs that would reduce the principal balance on mortgages by a small amount in order to keep the cash flow coming from mortgage payments. Given what we know about investment strategies to push companies into bankruptcy in order to benefit from credit default swap payouts, I was initially leery of such statements coming from bond investors. Then I remembered the problem with the paperwork on the mortgages – if bondholders can't prove ownership of the lien the homeowner keeps the house with no further payments. That's when it started to make sense.

Of course, if they can get the homeowners to come in for a re-fi they can correct the paperwork mistakes. It could be worth it to investors without default protection to accept principal reductions – if the homeowner goes into bankruptcy they may not be able to prove they own the mortgage without the new paperwork. With the re-fi, they get all new documentation.

These programs were designed for homeowners who are current on their mortgage payments but whose homes are "underwater", that is, the principal balance on the mortgage is more than the market value of the house. Some can keep up their payments with the hope that the market price of the home adjusts in the distant future; others might benefit by the modest reductions in principal favored by some bond investors. But in a situation described by a Stockton (CA) homeowner the principal reduction is unlikely to be enough – the home is worth $220,000 and the mortgage balance is $420,000. These homeowners' best financial strategy is to take the hit to their credit report and default on the mortgage. Investors like PIMCO might, if their paperwork is good, get half their investment back by taking possession of the property; they'll get it all back if they bought the credit default swap; and they get nothing if the paperwork is screwed up.

How many mortgages are underwater? Bank of America’s annual report says that 23 percent of their residential mortgage portfolio has current loan-to-market value ratios greater than 90 percent. When they include home equity loans in the calculation, totaling lending on a residential property, the share with less than 10 percent equity rises to 37 percent. At the end of 2008, Bank of America held $248 billion in residential mortgages and $152 billion in home equity loans, after taking write-offs of about $4.4 billion last year. On the other hand, Wells Fargo did not specifically report the share of their portfolio with loan-to-market value ratios greater than 90 percent. It’s hard to tell just how many mortgages are how far underwater at an aggregate level. I would imagine that these numbers are being checked in the Treasury’s stress testing of individual banks.

In any event, Congress is not giving up (although we almost wish they would before this gets any worse). The House Committee on Financial Services combined with the House Judiciary Committee has introduced a new bill to improve the old bill's version of Hope for Homeowners. Trying to take it a step further, the House Financial Services Committee is holding hearings on a Mortgage Reform Bill next week. The plan is to set lending standards for all mortgage originators. Chairman Barney Frank (D-MA) is of the view that the "great economic hole" we are in was started by“ policymakers’ distrust of regulation in general, their enduring belief that markets and financial institutions could effectively police themselves."

With this we do agree: self-regulation in financial services is a root cause of our current economic disaster. Until it is completely removed – not just from mortgage lending but from all financial products and services – nothing Congress does will prevent another crisis.

The Tax Foundation calculates the taxes paid per capita, including what is spent by people on average in neighboring states, including state and local fees. The two maps show, first, the tax burden, taxes paid as a percent of income, the second, the difference in the ranks of states in tax burden and in income.

The map for tax burden is colorful, so one might suppose there is a big difference in the local and state burden. There is variation, but the amazing story is how small the differences really are. The variation is from a maximum of 11.8 percent in New Jersey (note that Taxachusetts is in the middle of the pack) to a low of 6.4 percent in Alaska. But most states, 38, are in between 8.6 and 10.2 percent.

The lowest tax burdens are not surprising – Alaska (6.4) and Nevada (6.6), but the next lowest, Wyoming (7) and Florida (7.4), may be a surprise. The highest tax burdens, as may be expected, are megalapolitan New Jersey, New York (11.7), Connecticut (11.1) and Maryland (10.8), but Hawaii (10.6) in this group may be a surprise. The states in the middle, besides Massachusetts, include a contiguous set centered in Chicago – Illinois, Indiana, Iowa, Michigan, Kentucky and West Virginia (all 9.3 to 9.5).

The modest range of burdens implies that generally richer states have higher tax burdens and poorer states have lower burdens, but the second map shows that there are many exceptions. Richer states with higher tax burdens include (a small difference in tax and income ranks) District of Columbia, New Jersey, Connecticut, New York and Maryland, and poorer states with a moderately low tax burden are few – Alabama, New Mexico and Montana. Poorer states but with a high tax burden are Arkansas, Kentucky, Utah and Idaho, but this finding perhaps tells us the statistical problem or risk in using per capita rather than per household measures. Strongly Mormon Utah and Idaho, indeed all four states have high average household size, so are not as disadvantaged as the data suggest. For a similar reason, Florida may not be as good as it looks, since it has a quite low average household size.

Most interesting may be the richer states with lower ranking tax burdens, notably Wyoming, New Hampshire, Washington and Nevada. Other states with a relatively low burden (lower tax rank than income rank) include Alaska, Colorado, Florida, Massachusetts, and Texas and other states with a relatively high burden (much higher tax rank than income rank) include Georgia, Kentucky, Ohio and West Virginia.

Finally states with close to the same rank in income and tax burden include a set of contiguous Midwestern states, Iowa, Minnesota, Missouri, and Kansas, then Michigan, Oregon and California.

But in sum, choosing a state based on its local and state tax burden could be worth the effort, but the effects by themselves could be more limited than commonly supposed.

New Geography contributor Richard Reep has written lately on the increasing activity of farmer's markets and how the financial crisis may boost local markets.

Here's a great interactive map at FortiusOne GeoCommons of a USDA database of national farmers markets.