Half Changed World

I've written here a few times before about Prosper, the social lending site.  Last year at tax time I noted that you could see the recession starting to show up in the statement, with two loans sold as delinquent, and more and more loans running behind in payment.  Well, this year I've got a bunch more delinquent loans. 

What's annoying though is that Prosper is reporting them as "charge-offs" meaning that they don't think they'll ever be repaid, but they're still trying to collect them.  This makes it questionable to claim them as losses on my taxes, even though the one loan where they subsequently made some collections was reported as income.*  By contrast, if they sold the loans for less than face value, it could have been a standard capital loss.  My understanding is that they tried to sell them, but couldn't find anyone who would buy them.  Sound familiar?

What makes this a less than complete miniature version of the banking crisis is that Prosper didn't sell tranches on its loans — when you bought a share of a loan, it was just a straight fractional share, with everyone getting a corresponding share of the monthly payments. 

When Prosper suddenly stopped taking new money in the fall, they claimed it was because they were entering a SEC quiet period.  My understanding is that this wasn't exactly voluntary — the SEC said that they weren't just a middleman, but were creating securities without any oversight.  Frankly, I'd be shocked if they ever reopen for business.

*I've googled, and it's clear that some people are planning on claiming the charge-offs as losses.  But the IRS looks very closely at losses that aren't matched with a 1099-B, and the $30 I would save on my taxes is not worth the increased risk of being audited.  Even if I wasn't a DC policy wonk.

I installed TurboTax tonight in order to take the first baby steps towards dealing with our taxes.  At the start, they ask you about a number of things that you might have done during the year that affect the questions they'll ask you — things like did you marry, have a baby, move, start a new job. 

One of the questions was "Did you lose a home to foreclosure?" 

I'm pretty sure that they didn't ask that question last year.

I was shocked by how thin today's Washington Post was.  The Book Review section, which is ending as a stand-alone section in a few weeks, had essentially no ads.  The car ads were a single folded sheet, so 4 pages.  The help wanted section was a sheet and a half, 6 pages.  I don't see how they can survive like this.

I guess I'm one of the people responsible for the collapse of print newspapers.  I subscribe to the Sunday Post only, read both the Post and the NY Times online.  (We also get hard copies of both, plus the Wall Street Journal, at work, but I usually wind up reading online anyway.  It looks more like I'm goofing off when I'm reading in the lunch room than when I'm in front of the computer.)

One of the joys of our system of employer-provided health insurance is that the odds are pretty good that if you lose your job, you'll also lose your health insurance. 

Well, you can continue your coverage with COBRA, but relatively few workers who have just lost their job can afford to pay 102 percent of their premiums for an extended period of time. The average COBRA payment eats up something like half of the average unemployment insurance benefit.

If you're young and healthy, you might be able to buy an individual plan for less than your COBRA payments, especially if you're willing to accept a high deductible and hope you don't get sick.  If you have children, they might qualify for public insurance, through SCHIP or Medicaid, but unless you were seriously living paycheck to paycheck and have no assets, you probably won't qualify.

The Economic Recovery bills moving through Congress attempt to deal with this problem in a couple of different ways:

• it would provide a federal subsidy for part of the cost of COBRA payments
• it would extend how long you could continue to participate in your former employer's plan if you were within 10 years of qualifying for Medicare, or had worked for your old employer for at least 10 years.
• At least on the House side (it may be in the Senate bill too, but I haven't found it), it would let states cover workers receiving unemployment benefits under Medicaid, without regard to income or assets.

I'm not an expert on health care policy, but this strikes me as a bit of a kludged together package.  For one thing, it leaves out the 60 percent of unemployed workers who don't qualify for unemployment insurance, most of whom probably didn't get employer-provided benefits in the first place, and so can't get COBRA either.  For another, COBRA is a pretty expensive way to cover people — Medicaid is  lot cheaper. 

I'm not really objecting to the proposal — it's better than doing nothing, and I recognize that health care reform isn't likely to happen in the next month.  But this really isn't a substitute for doing health care reform for real.

I spent much of the day immersed in the details of the recovery legislation that's being introduced in the House.  And all I can say is, wow, we're really in a whole new world.

I know, there's still a long way to go between this preliminary bill being introduced and something being signed into law.  (I watched my schoolhouse rock, you know.)  But, for someone who has spent much of my life fighting for incredibly modest incremental improvements, it's just mindboggling to read a bill that in one stroke would do so much.

Just to give one example: you might remember that last fall, I was excited that the Senate tax bill would lower the threshold at which families begin to qualify for the child tax credit to $8,500.  Well, this bill would lower the threshold all the way to $0.  If a family with a child earns $1, they would get a $0.15 tax credit.

This is just totally outside of my zone of experience.  The only time in my life when Democrats have controlled both the Presidency and both houses of Congress was 1993-1994.  And Clinton was so convinced that he needed to bring the budget deficit under control that he famously complained that they had become "Eisenhower Republicans." 

So, wow.

Jen said she liked my wonkish take on work-family issues, so here's a post for her.

On money.com, I found this survival guide to keeping your job in a recession, which includes the following recommendation:

I agree with the second half of this — being indispensable is definitely a good way to keep your job — but not necessarily the first.  If you're as productive in 8 hours as your colleagues are in 10 hours of sitting at their desks goofing off, you should be ok.  As long as your boss knows that you're productive, that is.  And if your boss doesn't know how productive you are, you've got problems, regardless of the economy.

That said, I suspect full-time telecommuters are somewhat more vulnerable to layoff than people who show up to an office, in part because it's a lot harder to tell someone you see every day that you don't need their services.

This blog post from the Sloan Work-Family Network suggests that people are pitching work-life flexibility as a way to reduce costs and boost productivity in a recession.  Juliet Bourke worries that this could cut both ways (e.g. employers might cut people's hours involuntarily — and BLS data supports that there's a lot of involuntary part-time work out there), but concludes that it's probably a positive thing if it gets more employers used to the idea of workplace flexibility.

I also think there's another argument to be made, that if companies can't afford to give workers raises, but want to reward them and keep their loyalty, things like flexible hours or telecommuting can be a cheap way to make workers happy.  The downside of that argument is that it reinforces the idea that workplace flexibility is a perk for your best workers, rather than something that should be generally available.

What are you all seeing in real life? I can't seem to find the specific post, but Laura at 11d has
said that she sees a lot more wall-street types catching the 5pm train
instead of the 7 or 9 pm one, and seeing more of their kids as a result.

On the plane last week, I finally had the chance to read Paul Tough's Whatever It Takes: Geoffrey Canada's Quest to Change Harlem and America.  Tough is a reporter for the NY Times Magazine, and this is his expanded coverage of the Harlem Children's Zone, which he's reported on over the years.  Obama has said he wants to create 20 Promise Neighborhoods, modeled after the HCZ, so I thought it was important to read the book.

HCZ is an attempt to change the odds for kids in a poor neighborhood by providing an extensive range of services, everything from parenting classes to preschool to charter schools to summer programs.  What makes it different from most other attempts is:

• it tries to cover kids from birth through college, on the assumption that no program lasting just a few years is going to keep kids on the right track in the face of overwhelming obstacles.  This is in many ways an implicit rebuke to the extravagant claims sometimes made for  Head Start or  home visiting  programs.
• it tries to reach enough kids — ideally it would be at a scale to reach every kid in the target neighborhood — to change the culture of the neighborhood for the better.  Canada explicitly argues that the well regarded KIPP charter schools encourage students to separate themselves from the community as a whole

Tough doesn't hide that he's a believer in the HCZ approach.  In general, the book is overwhelmingly positive about Canada and the HCZ, although a long section is devoted to the struggles at the charter middle school they operate, and the choice to give up on the first class of students after two years of disappointing results. 

I think HCZ is a fascinating experiment, but Whatever It Takes isn't quite a fascinating book.  It's a solid book, well-reported, with a decent popular summary of the academic literature behind the theory.  But, fundamentally, the story of HCZ is really only in its first chapter, with no one knowing how it will turn out.  Geoffrey Canada's personal story is quite intriguing, but Canada himself has already written that book.

If you like to listen to the radio, I might suggest the coverage of this book on This American Life or Talk of the Nation instead.

I was fascinated by this story in the NY Times about how the demand for Spam has risen as the economy gets worse.  What it tells me is that there's a lot of people who consider meat — even in the form of highly processed parts — essential to their diet.

Even if I ate pork, I can't imagine ever buying Spam.  If I don't have the money for regular meat, I'd rather eat vegetarian meals than Spam.  (Yes, I do occasionally eat beef hot dogs, which are only marginally closer to the "real meat" side of the spectrum.)

As I've said before, I think that my willingness to do without meat is a large part of the reason that we didn't have trouble doing the Thrifty Food Plan experiment.  The market basket that the plan is based on includes allowances for a reasonable amount of meat — for an adult male, they assume 0.63 pounds of beef/pork/lamb and 2.55 pounds of poultry per week.  (The equivalent numbers are actually slightly higher for adult women.)  When we were following the TFP budget, we were eating significantly less meat than that.

The TFP is overall an interesting construct.  It's designed to be low-budget, to meet all the RDIs for nutrients, and to follow the food pyramid, but it's also based on what low-income people actually eat.  It's not a fully artificial construct of "how little could one spend and still have a nutritionally adequate diet."  So, no, they don't expect you to eat oatmeal, eggs and lentils day after day.  And it includes a fair amount of convenience foods.  (Although they do note that they were unable as a result to get down to the recommended levels of sodium consumption, even assuming no added salt at the table.)

So what about you?  If you're not a vegetarian, do you feel deprived without meat?  What substitutes are acceptable and what are not?

A couple of weeks ago, Planet Money tried to explain why deflation is a bad thing.  They basically gave two answers:

1)  Both inflation and deflation can spiral out of control, but a strong central bank has more things that it can do to control inflation (mostly raise interest rates).   The Fed can’t lower interest rates below zero, and it’s getting pretty close that wall already.

2) When people expect prices to drop, they don’t want to buy things now that they can get cheaper next year.  And businesses don’t want to invest today in order to make things that they’ll have to sell for less next year.  So consumption and investment both drop.

The first answer makes sense to me, but I’m not entirely convinced by the second one. It certainly seems to apply to houses.  But we’ve been living in a world for the past several decades where consumer electronics get better and cheaper every year.  Everyone knows that if you wait for the next Apple upgrade cycle, you’ll be able to buy an iPod that is smaller, has new features, and costs less.  But it hasn’t stopped people from rushing out to buy.

So, is the overall economy more like buying a house, or buying an iPod?  Well, there’s not much that people buy other than houses that are investments, rather than consumption.  And I’m not convinced that the reason people aren’t buying cars is that they think they’ll be cheaper at a future date — rather, it’s that they’re afraid to borrow when they might lose their job (or can’t get credit).

Am I missing something?

It appears that the $700 billion bailout fund isn’t going to be used to buy "toxic assets" from the banks after all.  I’m not sure how I feel about that. 

On the one hand, the folks at Planet Money have been telling me since before the bailout bill passed that most economists think a stock injection plan makes more sense than buying assets of unknown value.  On the other hand, Congress certainly thought they were giving Treasury authority to buy lousy assets, not all this other stuff.   Neel Kashkari, who is running the bailout office, may be doing the right things.  But no one elected him anything, and no one confirmed his appointment.  And I’m enough of a believer in checks and balances to think that
maybe the Treasury ought to be going to back to Congress and saying
"this is what we want to do and why."

I also think the fact that Kashkari is literally a rocket scientist* (well, technically an aerospace engineer) is a symptom of what’s been wrong with the American economy.  There’s just been so much money sloshing around the financial sector that it’s been sucking smart people away from jobs where they actually do something productive.  Being an engineer is on average a good-paying job, but it’s not a winner take all job — very few engineers make more than $200,000 a year. 

*For what it’s worth, David Kestenbaum at Planet Money has a PhD in Physics.  I haven’t been able to find anyone working in finance who is literally a brain surgeon by training.