Category Archives: Business and Economy

Another possible consequence of the foreclosure crises: a lack of trust of financial institutions

Posted on by

In recent decades, a number of sociologists have written about a necessary feature of human interaction: trust between the individuals or groups involved. Two sociologists discuss this in the Huffington Post:

While also feeling shame and embarrassment, even personal failure, for having allowed themselves to be taken in, these families are also aware of the exploitation they have experienced at the hands of their “trusted” financial advisors. That mistrust threatens the recovery some believe has begun in recent months.

As the British sociologist Anthony Giddens has noted, in complex societies where each individual cannot become expert in all the institutional contexts in which they must operate, trust is essential for people to negotiate the various realms, including financial institutions, in which they operate. People must feel secure in the trust networks they establish in order to survive and prosper, and for society itself to advance.

In a series of in-depth interviews nationwide with 22 adults who are at risk of foreclosure (they were either behind in their mortgage payments at some point in the past two years or, in two instances, had already lost their homes due to foreclosure) all respondents expressed both anger and personal responsibility. The interviews lasted between 30 and 90 minutes. In no question with any respondent was the word “trust” used. But in every case but one, the respondents explicitly referred to the mistrust they now have for anyone associated with the mortgage lending industry in particular or financial services generally.

From this short excerpt, it is hard to get an idea of how representative these 22 respondents are and how we can know whether their opinions reflect those of Americans at large. But if this is generalizable information, it suggests it could take a long for customers to approach the mortgage industry in the same way. At the same time, many Americans don’t really have many other options when shopping for a home: a mortgage is a necessity. So how could the mortgage industry once again gain the trust of consumers – special programs, special efforts, more government regulation?

According to the postscript at the end of the article, a longer argument from these two sociologists will be published soon in Social Science Quarterly.

The American Bar Association issues a financial warning for prospective law students

Posted on by

The American Bar Association has issued a warning for perspective law students about the cost of obtaining a law degree:

According to the association, over the past 25 years law school tuition has consistently risen two times faster than inflation.

The average private law student borrows about $92,500 for law school, while law students who attend public schools take out loans for $71,400. These numbers do not include any debt law students may still have from their time as undergraduates.

Before the recession, the ABA cites statistics that show an average starting salary for an associate of a large law firm of about $160,000 a year. But by 2009, about 42 percent of graduates began with an annual salary of less than $65,000.

And those are just the newbies.

This is an interesting statement: a national organization warning students about the large amount of debt they will incur (and hinting at the lack of jobs to pay off this debt) for their own profession. What do law schools think about this? What sort of discussions took place before issuing this warning? How many complaints have come from people who did not know about the full cost of getting a law degree?

It would help to have some context regarding this statement. Is this the first time the ABA has issued something like this? How unusual is this across a variety of disciplines that require a professional or advanced degree? Are other organizations interested in issuing similar statements?

(Read the full statement here.)

h/t Instapundit

Deciding whether to buy or rent

Posted on by

One of the New York Times blogs discusses whether residents should buy or own. The decision could be based on a ratio for metropolitan areas that gives some indication of whether owning or renting is a better choice:

A good rule of thumb is that you should often buy when the ratio is below 15 and rent when the ratio is above 20. If it’s between 15 and 20, lean toward renting — unless you find a home you really like and expect to stay there for many years.

While the metropolitan average is 15.1, 17 metro areas have ratings over 20 (led by East Bay, CA, Honolulu, HI, San Jose, CA, San Francisco, CA, and Seattle) and 14 metro areas have ratings below 15 (with the five lowest being Pittsburgh, PA, Cleveland, OH, Detroit, MI, Phoenix, AZ, and Dallas – Fort Worth, TX).

The blog writer come to this conclusion about the data: “It’s pretty amazing when you think about it. The country has suffered through a terrible crash in home prices, yet buying a house remains an iffy proposition in many markets.”

While this may be true, what is even more remarkable is that homeownership is still such a widespread goal. If this measure is reliable and valid (meaning that it is consistent and it really tells us something about buying vs. owning), then homeownership might never really be about an economic improvement over renting. Rather, Americans have made owning a home an important cultural value and then use economic rationales to justify their decisions.

What exactly is it that appeals to people about owning their home? They get to make their own decisions, they don’t have to pay a landlord or wait for them to take care of repairs, they get some separation from their neighbors, and overall, they feel like they have made it on their own. If renting was a cheaper option but people could still afford to buy a home, how many Americans would decide to rent?

An argument for why we should be hearing more about falling home prices

Posted on by

The last several years have seen many stories published and produced about homes and home values. But Dan Froomkin argues that we should be hearing even more about how home values continue to fall:

You might not know it from reading the news, but the nation’s housing prices are in free fall again…

Despite the fact that the nation is officially in a period of economic recovery, the latest data show that home prices are diving. One recent survey pegged the decline at 0.7 percent per month; another found prices down 5.8 percent between August and October.

One analysis found  home values will likely drop more than $1.7 trillion this year, on top of the $1.05 trillion drop in 2009. That would bring the loss in wealth to $9 trillion since the June 2006 market peak, when the housing stock was valued at about $24 trillion…

Dean Baker, co-director of the liberal Center for Economic and Policy Research, tells me the story isn’t getting nearly as much coverage as it should — if nothing else because “as you see a drop in home equity, you also see a drop in consumption.”…

What that means is that another trillion-dollar loss in housing wealth — something that could easily happen by next fall — translates to $50 billion to $70 billion less consumption; sort of an anti-stimulus.

This is obviously not good news. I wonder what Froomkin would say the value is in having Americans hear this story more often and with more emphasis: would people be moved to act in certain ways, like making requests of politicians to do something or trying to get out of homeownership?

A link is made in this story between home values, consumption, and jobs. So if this is a vicious cycle that involves these three factors, where do we begin in trying to reverse the trend? With tax cuts – or extensions of tax cuts? It sounds like the one issue that would help out the others is jobs. If more people had good-paying and stable jobs, they would spend more overall and some of these issues of home values wouldn’t be as much of a concern.

h/t Instapundit

Rationale for ban against future fast-food restaurants in South LA

Posted on by

Earlier this week, Los Angeles developed some new restrictions for new fast-food restaurants:

New fast-food restaurants in South Los Angeles will be banned within a half mile of existing ones under an ordinance approved Wednesday by the City Council.

The law includes other restrictions on stand-alone eateries, the Los Angeles Times reported. They include guidelines on landscaping, trash storage and other aesthetic issues.

Similar limits are in place in other LA neighborhoods. The council imposed a moratorium two years ago in southern Los Angeles.

Is this an example of the government telling people what they can or cannot eat? Is this example of a government limiting business or jobs opportunities? The rationale for these new regulations is interesting:

The goal of the restrictions is to encourage the development of stand-alone restaurants and grocery stores.

“For a community to thrive, it is important to have balance, a full variety of food, retail and service providers,” said Councilman Bernard C. Parks, one of the sponsors of the ordinance.

The ordinance includes exemptions for fast-food restaurants in mixed-use developments and shopping malls and for existing restaurants planning to expand.

These sorts of rules are not unusual in communities. How does this differ from a suburban community that decides it won’t allow any more banks in its downtown? Or communities that have restrictions against tattoo parlors? Both banks and tattoo parlors create jobs and bring in some sort of tax dollars. If the City of LA wants to promote other kinds of development, this seems like a reasonable rule that doesn’t force out already existing stores but limits their future growth.

At the same time, the issue of fast food seems to bring out passionate arguments from people. Do we have a “right” to fast food restaurants? A lot of critics of sprawl argue that fast food restaurants represent the worst of sprawl: they are completely dependent on the automobile, the food is cheap, mass-produced, and not healthy, and the restaurants and their signs are garish advertisements for multi-national corporations who couldn’t care less about local communities. Others argue that we should be able to eat what we want when we want.

In Los Angeles, they seem to have made a decision about promoting other kinds of development. Communities make decisions like this all the time, depending on factors like tax revenue and what goals or values they wish to promote.

Conference on colleges and universities as critical part of regional development

Posted on by

A recent conference suggested that colleges and communities could cooperate more closely in order to foster economic development:

Colleges must play a greater, and more deliberate, role in helping regions innovate and thrive in an increasingly competitive and globalized economy, speakers urged this week at a conference on higher education and economic development.

Economic development is “no longer about attracting businesses,” said Sam M. Cordes, co-director of the Purdue Center for Regional Development. “It’s about attracting people, about attracting talent.”

Participants in the two-day conference, “Providing a Uniquely American Solution to Global Innovation Challenges: Unleashing Universities in Regions,” delved into the various ways colleges can help build stronger local economies, including acting as conveners for conversations about regional development, aligning their curricula with local elementary and secondary schools, and producing and retaining well-educated workers.

This is a popular topic these days, particularly in difficult economic times. People like Richard Florida have linked the presence of research universities and their graduates with cities that have a larger concentration of the “creative class,” which then leads to more development. There are a lot of cities and communities that hope they can tap the local college in order to boost the local economy. It looks easy: the local university has a bunch of PhDs and eager students.

But how exactly this is supposed to happen is less clear.  I remember the battle that took place in South Bend in the last five years. The University of Notre Dame wanted to expand and partner with the community to construct an “innovation center” that would blend the university and businesses. However, this became controversial as it involved bulldozing a number of houses, bringing up some of the old issues between the wealthy school and less wealthy city.

It sounds like this conference offered more specific ideas of how the university can partner with local communities and businesses in order to prompt growth. Since each school and community offers unique advantages (and disadvantages), such partnerships are likely to take a good amount of work. Both the school and community need to feel that they will benefit from the time and hard work that is necessary to put something together.

Innovative (or strange) mall designs

Posted on by

Many shopping malls are not that exciting to look at: they are functional in providing retail space and enough amenities to keep shoppers coming back. When critics talk about the blandness or homogeneity of suburbs, shopping malls are often included in the analysis: if you have been in one shopping mall, you have been in them all. But what if architects and designers took the shopping mall in a new direction? Popular Mechanics highlights “the world’s 18 strangest shopping malls.”

Some questions: do these different designs increase retail sales? Do shoppers have a better overall experience in these places?

h/t Instapundit

Considering workplace flexibility

Posted on by

Some jobs offer more flexibility than others where a worker has an opportunity to structure their own schedule or make it to other important events in life that are held during typical work hours. Sociologist Alfred Young has looked into the issue of workplace flexibility and recently made a report to a conference:

When an assembly-line worker at a Midwestern auto-parts plant studied by Alford A. Young Jr. , a sociology professor at the University of Michigan, left work without permission to coach his son’s football team in a championship game, he paid a high price, Young told about 200 researchers, government officials and employers Tuesday at a Washington, D.C. conference on flexibility.

The story sprang from a study of the means employees use to resolve work-family conflicts–collaborating with the boss vs. sneaking around. The worker, whom Dr. Young called James, had committed to coaching his son’s team, and when the team made the championship round he asked to take a Saturday afternoon off to be present. The boss said no.

When the day arrived, James left work for lunch and later called his boss to say that his car had broken down, saying “ ‘I called Triple-A but I don’t know if I can make it back,’ ” Young says. James got to coach the game, but he also got written up by his supervisor and busted to a lower seniority level.

Such disruptions can be avoided, Young says, if supervisors bend a little, perhaps even breaking a rule or two, to try to find a solution within the work team, perhaps by allowing a shift trade; this benefits employers by motivating employees to go the extra mile and remain loyal to the company.  While this happens routinely at many workplaces, about 80% of all workers still lack the workplace flexibility they want, according to the Alfred P. Sloan Foundation, the conference sponsor. What doesn’t work, his study found, allowing to develop the kind of clash that encompassed James.

I feel like a lot of the talk about telecommuting and the changes that might come to the workplace due to changing technology might really be about increasing the flexibility of workers. If the main concern is that a job gets done, perhaps it doesn’t matter as much whether an employee keeps certain office hours. Younger workers also seem to like the idea of flexibility, to not be completely tied down because of a job. But perhaps even the American small business spirit could be tied to this issue – some people enjoy being able to set their own hours and agenda.  But this may not apply in the same way to areas like manufacturing.

If 80% of workers desire more flexibility, is this something more businesses and organizations should address? I would be interested in knowing what holds businesses back from being more flexible with workers. Profits? Appearances? A certain workplace culture? Directives from higher-ups?

$1 for your trouble

Posted on by

How much is a technical trespass worth?  Apparently $1. That’s the amount just granted to a couple who had their home photographed by Google as part of its Street View service:

over two and a half years after the case got started, a judge has handed down her consent judgement, ruling that that Google was indeed guilty of Count II Trespass. [The plaintiffs] are getting a grand total of $1 for their trouble. Ouch.

Ouch indeed.  It’s not quite Bleak House, but 2.5 years of litigation is an awful lot of trouble for $1, any way you measure it.

The long process of foreclosure: an average of 492 days

Posted on by

Even though Black Friday sales may have been decent, housing is still lagging. Another indicator: “the number of days since the average borrower in foreclosure last made a mortgage payment” is 492 days. The Wall Street Journal adds more about this figure:

In recent months, the number of borrowers entering severe delinquency — meaning they missed their third monthly mortgage payment — has been on the decline, falling to about 700,000 in October, according to mortgage-data provider LPS Applied Analytics. But it’s still more than double the number of foreclosure processes started.

As a result, banks are taking progressively longer to foreclose. The average borrower in the foreclosure process hadn’t made a payment in 492 days as of the end of October, according to LPS. That compares to 382 days a year ago and a low of 244 days in August 2007…

Speeding up the process won’t be easy, as demonstrated by the banks’ continuing legal troubles related to robo-signers, bank employees who signed foreclosure affidavits without properly checking the required loan documentation.

Millions of Americans still are paying their mortgages even though they owe more than their homes are worth. The more banks’ backlog grows, the more likely they are to join it, adding to the already giant pile of foreclosures weighing on the housing market.

In my mind, one of the issues is that we don’t really know the true state of the housing market until all of these foreclosures go through. And if the average length is more than a year, it is going to take a long time to get all of these through the system, let alone deal with new foreclosures.

I wonder if the length of foreclosure differs by location. In areas that were hard hit by foreclosures, like Las Vegas or parts of California, are the banks ahead or behind in regard to these 492 days? Are there areas of the country where it is in the banks’ interest to slow down the foreclosure process because they can’t really do anything with the houses anyway?

h/t Instapundit