RAHM EMANUEL AND ELECTRONIC TESTING: GOOD GOVERNMENT REALLY IS GOOD POLITICS, EH?

10/24/14

City of Chicago Human Resources Director Soo Choi said Thursday that she wants to convert all tests for city jobs from paper exams to electronic exams.  This is being touted by the Emanuel administration’s toadies in the media as a sharp blow for fairness, against corruption and the evils of patronage.  (See my nearly instantly seminal comments on patronage and its effect on governance, PATRONAGE, THE SHAKMAN DECREE, THE CITY THATONCE WORKED…AND DAVID COPPERFIELD, published 6/16/14 at Rant Lifestyle.) 
In its eagerness to embrace the veneer of reform, the local cheering section for Rahm Emanuel that calls itself the City Hall press corps has it wrong.  Mr. Emanuel’s plan to replace paper tests with electronic tests is not a blow for clean government but, rather, a concession to the modern reality of politics and yet another move to drop the peanuts and grab the golden nuggets.
The precinct captains and the armies of patronage workers of which they were once part are effectively dead as devices for getting out the vote and winning elections.   Federal pressure, largely in the form of Shakman enforcement, has made disciplining the troops nearly impossible.  Maybe more importantly, voters are too busy (Some gullible types say too informed, but that is another issue.) or insouciant to take the time to listen to their neighbors’ pitches for candidates.  The modern voter, even in the remaining supposedly Machine bastions, decides how to vote based on idiotic 30 second ads that interrupt his or her nightly viewing of the schlock we call prime time television.  Over the last 30 or 40 years, the television has steadily replaced the ward organization as the key to winning elections; the television is the new precinct captain and has been for years.   Some of us think this is not an entirely favorable development (See the aforementioned post.), but I digress.
The precinct captain can’t do the pols much good, so why bother fighting Shakman and other federal attacks on patronage?   Why not go the good government route and make moves, such as replacing paper exams with electronic tests, that will further wow the already completely in the tank press and, more importantly, yield an enormous dividend itself?  
What is the dividend this latest goo-goo maneuver will yield?  The electronic tests will involve millions of dollars in contracts for consultants, vendors, lawyers, facilitators and God only knows who else.  Do you suppose that those on the receiving end of this largesse will not show their gratitude by making generous contributions to the various political funds of the mayor and his minions?   If you don’t suppose so, you are hopelessly naïve; make no mistake; something is expected from those who do business with the city, and such expectations, of course, didn’t start with Rahm Emanuel.
Why bother defending patronage when it is impotent in the modern political era?  Why not actually join the fight against it when doing so can generate the money that can be used to buy the inane 30 second ads (and employ relatives, friends, and other hangers-on in the political apparati) that actually win elections in this era of the frighteningly low information voter?

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

MORTGAGE LENDING: “LET’S TAKE IT NICE AND EASY, IT’S GONNA BE SO EASY…”

10/22/14

Two developments on the mortgage regulatory front warrant serious consideration and spawn one insightful observation and draw two conclusions.

Federal Housing Finance Agency Director Mel Watt announced yesterday that Fannie Mae and Freddie Mac will guarantee mortgages with down payments as low as 3%.  Previously, though there were exceptions, Fannie and Freddie required 20% down payments on mortgages they guaranteed.

At the same time, the Dodd-Frank requirement that banks retain 5% of the risk in the mortgage loans they originate and sell to investors or require a 20% down payment on such loans was watered down.  Under the new rules, banks can avoid retaining risk in the mortgages they originate and sell by merely “verifying a borrower’s ability to repay” and ensuring that their debt levels remain below certain predetermined thresholds.

Both moves are part of a general thrust toward easing home lending requirements and are seen as a response to a continued sluggish housing market that is characterized by home sales’ being down 2% from last year and still below pre-recession levels of seven years ago.

One can make one observation and draw two conclusions from these regulatory developments.

First, the observation:  At the expense of sounding like a heretic in the church of new age financial innovation, when you have put down only 3% of the value of “your” home, you don’t own the home; your lenders do.  Many have pointed out that only a slight change in housing prices would wipe out one’s equity under such a structure, and that is true.  But even more fundamentally, one doesn’t have to be as atavistic as yours truly to realize that you don’t own anything when you have borrowed just about its entire purchase prices.

Now, the first conclusion.  Wall Street must have gotten to the regulators.  Mortgage backed securities issuance is down 50% year to date from last year.   This of course hurts the trading profits of banks and other Wall Street institutions.   The regulators and their political masters are following their usual “Yes, sir, you’re right sir, what else can I do to make your life easier, sir?” approach to Wall Street and to anybody else capable of writing brobdingnagian “campaign” checks and providing other sources of lucre to our selfless public servants.  That the taxpayers and others not within the vortex of Washington may wind up with the bill for such service is inconsequential to the political class.

Finally, the second conclusion.  Regulators have to have concluded that our Potemkin housing market, and maybe our Potemkin economy, cannot survive without massive debt extension and creation.  That a large chunk of such debt may be unserviceable, and thus will have to be picked up by the taxpayers is, again, inconsequential to the political class or to the special interests it services.