Category Archives: Nevada economy

Real Nevadans Real Numbers Real Income

The big push of the week appears to be that the Republicans have in mind a “middle class tax cut.”  Notice please that we’re not getting all that much in the way of “tax reform” but we are poised to get a deficit financed tax cut.  And, that WE part doesn’t actually include all that many people who file tax returns from Nevada.

Nevada by the Numbers:  2,940,058 Nevadans filed tax returns in 2015 (the last year for which statistics are available from the IRS.) 655,530 were individual tax returns and 440,130 were filed as joint returns.  There were 233,730 filed as Head of Household. 713,530 filers used paid preparers.  The number in that last category ranges from those who have extremely complicated filings to those of us who simply find it convenient to have someone else fill in the forms, or those who take advantage of tax prep companies who offer free filing services to those who don’t actually owe taxes or have small refunds due from the taxes they’ve already paid.

When we look at the adjusted gross incomes reported by Nevadans it may be useful to put the numbers in some context.  For example, the median income in Nevada is $51,847 and the per capita income is $26,541. The median value of a housing unit owned by the occupant is $173,700 and the median selected mortgage cost is $1,442 per month.  The median gross rent is reported as $973.00.  This gives us a preliminary picture of the 1,016,709 households in Nevada, and our population of 2,940,058.

1,350,730 Nevadans filed income tax returns in 2015.   27.21% of the Nevada filers reported adjusted gross income between $25,000 and $50,000.  13.5% of filers reported AGI between $50,000 and $75,000. 8.15% reported AGI between $75,000 and $100,000.  Another 10.22% reported an AGI between $100,000 and $200,000.  From this point on the percentage of filers by category drops, those reporting AGI between $200,000 and $500,000 were 2.48% of the filers; those reporting AGI between $500,000 and $1 million were 0.43%, and those reporting over $1 million AGI made up 0.26%.

The current (2017) tax brackets and explanations can be found compliments of the Tax Foundation in a convenient table form for single and joint filers. To make a long story a bit shorter, a person would have to have an AGI (adjusted gross income) of at least $191,650 if filing a single return to hit the 33% bracket, and $233,350 if filing a joint return.

The numbers indicate that 48.95% of those filing Federal income tax returns from Nevada are reporting below $100,000 in annual adjusted gross income.  Some of the 138,000 Nevada filings between $100,000 and $200,000 AGI may have been included in the bracket in which there is a $18,735.75 liability plus 28% of an excess over $91,900.  Fewer still would be in the 33% bracket with a liability of $46,643.75 plus 33% over $191,650.  Indeed, only 3.17% of Nevada returns reported AGI over $200,000 annually (35% and 39.6% brackets.)

Where’s the middle? Numbers are objective and instructive, but tax policy can get pretty emotional.   By the numbers a person earning about $52,000 per year in this state is in the “middle.”  Pew Research provides one of the more commonly accepted definitions of Middle Class, “2/3rds to 2 times the national median income for household size.”  In current parlance this would be in a range of $46,960 to $140,900.  If we compare this to the Nevadans filing tax returns in 2015 then 21.74% are in the $50,000 to $100,000 AGI range; some others will be in the $100,000 to $200,000 AGI range (10.22%.) Undifferentiated reporting with two sets of categorization make this a difficult call without being able to drill down into that latter classification of filers)  However, what these numbers do tell us is that to be considered a Middle Class Tax Cut the benefits should accrue to those earning between $46,960 (a little below the Nevada median earnings) and $140,900.

So, how does the current edition of the Republican tax plan fit into “the Middle.”

“Despite repeated promises from Republican lawmakers that the plan is designed to provide relief to the middle class, nearly 30 percent of taxpayers with incomes between $50,000 and $150,000 would see a tax increase, according to the study by the Urban-Brookings Tax Policy Center. The majority of households that made between $150,000 and $300,000 would see a tax increase.” [WaPo]

The report from which the Washington Post article is derived is more specific.

“In 2018, the average tax bill for all income groups would decline. Taxpayers in the bottom 95 percent of the income distribution would see average after-tax incomes increase between 0.5 and 1.2 percent. Taxpayers in the top 1 percent (incomes above $730,000), would receive about 50 percent of the total tax benefit; their after-tax income would increase an average of 8.5 percent. Between 2018 and 2027, the average tax cut as a share of after-tax income would fall for all income groups other than the top 1 percent. In 2027, taxpayers between the 80th and 95th percentiles of income (between about $150,000 and $300,000) would experience a slight tax increase on average.”

There’s something about an analysis from the Tax Foundation reporting that 50% of the total tax benefit going to the top 1% that doesn’t sound precisely like a “middle class tax break.”  In short, the analysis makes it seem much more likely that the plan would be far more beneficial for the Nevada income earners who report AGIs over $500,000 per year, a total of 9,290 filers out of 1,350,730 who filed tax returns.  This really isn’t a “middle class tax cut.” At least not in terms of the real Nevadans, who report their real incomes.

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Filed under Economy, income tax, Nevada economy, Nevada politics, nevada taxation, Politics, Taxation

Demolition Days On End

The television talking heads are talking about today’s sound and fury from the White House as “Demolition Day;” as if every day the mullet-maned moron occupying the Oval Office hasn’t been doing this from day one.

What is buttressing my sanity for the moment is the fact that MMM had a 49.4% approval rating in Nevada as of January 2017 (38.9% disapproval) and dropped to an approval rating of 43.6% in September 2017 and a disapproval rating of 51.2% in the Silver State.  [CNBC]

Much more love from the Republican Congress and the President and Nevada’s going to find itself in a world of hurt.   Case in point:  If the Republicans get their way in the FY 2018 budget 56,044 Nevada families will lose food assistance as of 2023, and 52,613 will lose them as of 2027.   But wait, there’s even more fun … another grand idea in this budget fiasco is to shift $100 billion of SNAP costs to the states.  So, Nevada would have to come up with 10% of the costs by 2020 and this increases to 25% in 2023 and beyond. Just in case lower income, mostly working, families in Nevada aren’t punished enough the GOP plan says states will have more “flexibility” to cut benefit levels to “manage costs.”  Of course Nevada will have to figure out how to get lower income working families basic food items at the local groceries, at state expense.  In case someone’s thinking this makes economic sense (that tired old canard about welfare queens on food stamps with waste and fraud) the actual numbers indicate that for every $5.00 spent on food stamps $9.00 is generated in economic activity. [CBPP] [MJ]

Case in point: The FY 2018 budget calls for cuts in fire-fighting operations.  As if the fires in California weren’t headline news at the moment.  The IAFC isn’t happy  seeing an FY 2017 budget of $2,833,000 for wildland fire management cut to $2,495,058 in FY 2018; or cuts to State Fire Assistance from $78 million down to $69.4 million, and Volunteer Fire Assistance from $15 million to $11.6 million.  And, by the way, the FLAME program (pdf) funding (wildfire reserve suppression fund, large fires) would be eliminated in the GOP budget.  Supposedly, the FY 2018 would sustain current 10 year average costs for fire suppression. [ECO]  The word “supposedly” is used with some caution, because as we experience climate change effects, the cost of fire suppression can be reasonably expected to increase, with a coterminous effect on budgets.   Meanwhile, there’s the matter of expensive fires in Napa and Sonoma counties.

And, then there’s the not-so-small matter of FEMA:

“The president’s budget blueprint calls for FEMA’s budget for state and local grants to be cut by $667 million, saying that these grants are unauthorized or ineffective. The program it explicitly calls out as lacking congressional authorization is the Pre-Disaster Mitigation Grant Program, and a second proposed change would require all preparedness grants to be matched in part by non-federal funds. All of FEMA’s pre-disaster grants are meant to reduce federal spending after disasters, and according to the agency’s website, there’s evidence that $1 in mitigation spending saves $4 in later damages.”  [Newsweek]

There are two points to highlight in this paragraph.  First, the budget cuts are made to grants for disaster mitigation efforts, without saying why the grants are “ineffective,” and we should note that any program can be declared “ineffective” if the standards aren’t reasonable. Secondly, as in the case of food stamps, there’s an upfront economic benefit — for every $1 spent on mitigation we save $4 in subsequent damage costs.   Once more we have a grand example of being penny wise and pound foolish.

Nor are the Republicans keeping their promises not to mess with Social Security and Medicare.

“Not only would it (the FY 2018 budget) cut Medicaid by $1 trillion, it would also cut Medicare by more than $470 billion in order to pay for hundreds of billions in tax breaks to the wealthiest people and most profitable corporations in America. Further, the Republican tax plan this budget calls for would increase the federal deficit by $1.5 trillion over the next decade, which will likely pave the way for savage cuts to Social  Security.”  [SenDem]

Oh, and by the way… let’s sabotage the NAFTA talks, scrap the only treaty containing Iran’s arms aspirations (and tick off all the other European allies who signed on), send a signal to North Korea that our word’s not worth paper on which it’s written, let the health insurance market destabilize into chaos, and withdraw from UNESCO.

And here we sit, not a shining beacon on a hill, but a flickering flame bent to whatever winds happen to be blowing through the head of MMM in the White House.  Not only are programs and services in peril within our own state, but the nation and the world are facing similar dangers emanating from an unraveling White House.

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Filed under Economy, FEMA, Health Care, health insurance, Nevada, Nevada budget, Nevada economy, Nevada politics, Politics, public health, Republicans, Social Security, tax revenue, Taxation

Heads Up Nevada, We Could Once More Join The Sand States

Heads up, Nevada!  There’s another storm on the horizon, and it’s not meteorological, nor is it related to the proliferation of high powered rifles and stockpiles of ammunition.  It has to do with a crisis we thought we’d withstood and overcome.

We were one of the Sand States eight years ago, those with massive development projects in which homes were constructed, mortgages were offered, and then sold into secondary markets to be sliced, diced, tranched, and manipulated into financial products in the Wall Street Casino.  We know what happened next.  The investment banking sector collapsed, the financial markets were in ruins, and Nevadans felt the aftermath with unconscionable unemployment levels and lost income.

The response was the Dodd Frank Act, a set of regulations to control the excesses of the Wall Street Casino and investment banking practices.  The first major assault came from the House of Representatives last June:

“The House legislation, called the Financial Choice Act, would undo or scale back much of Dodd-Frank. The bill was approved 233 to 186. All but one Republican — Walter Jones of North Carolina — voted for the bill. No Democrats supported it.

Its major changes include repealing the trading restrictions, known as the Volcker Rule, and scrapping the liquidation authority in favor of enhanced bankruptcy provisions designed to eliminate any chance taxpayers would be on the hook if a major financial firm collapsed.

The bill also would repeal a new Labor Department regulation, largely still pending, that requires investment brokers who handle retirement funds to put their clients’ interests ahead of their own compensation, company profits or other factors.”

Representative Mark Amodei voted in favor of this bill, HR 10, on June 8, 2017.   What Representative Amodei voted for was to allow banks to play in the stock market with depositors money (remember deposits are guaranteed up to $250,000) and to allow financial advisers to recommend products to their customers which are not necessarily to the advantage of their retired clients, but which may happily enhance the financial advisers’ bottom lines.   In light of what happened to this Sand State in 2007-2008 Nevadans should be especially concerned about this.  But, wait, there’s more

Remember that one of the major problems for working Americans, Nevadans included, was the burden of pay-day lending?  The Consumer Financial Protection Bureau, created by the Dodd Frank Act, is seeking to limit the negative impact of some of the more egregious practices in this sector of the banking industry.  Now the Comptroller of the Currency has another idea, publicized on October 5th:

“…the Office of the Comptroller of the Currency surprised the financial services world by making its own move—rescinding guidance that made it more difficult for banks to offer a payday-like product called deposit advance.”

Lovely, so now banks can “offer” those insidious high rate pay-day loans, only changing the name to “deposit advance,” and consumer will be right back on the hook.  At almost the same time as the CFPB issued a rule preventing pay day lenders from handing out loans without reviewing a customer’s capacity to repay the loans, the bankers get the green light to hand out “deposit advances.”

There is one bill in the US Senate which does offer some improvements on Dodd Frank, Senator Claire McCaskill (D-MO) and Senator David Perdue (R-GA) have introduced a bill to address some of the problems for community banks.  There are more reasons to support this legislation than to oppose it, but beware of the rationalizations and gamesmanship.

Those who want to eliminate the CFPB, gut its authority, or toss the Dodd Frank Act altogether may wish to convince us that (1) the entire act needs to be repealed to “enhance the free market,” or some other euphemism for re-opening the Wall Street Casino, (2) the CFPB places “burdensome” regulations on those pay day lenders who (bless their hearts) are only trying to provide more “options” for consumers.   This isn’t the most interesting or engaging story of the moment, but it is an issue Nevadans would do well to follow very closely.

We don’t need to be ground into the sand again.

 

 

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Filed under Amodei, Economy, financial regulation, Nevada, Nevada economy, Politics

While We’re Ducking and Dodging

While we’re ducking, dodging, and otherwise attempting to avoid damage from the GOP, they’re still busy with legislation to make our lives just a bit more difficult.  Cases in point:

The House leadership has delayed, but hasn’t promised to discard, a bill, HR 367, to allow the general sale of silencers — which the proponents tell us will mitigate hearing loss for gun owners.  Pro Tip: A nice pair of headset style ear protectors will set you back about $30.00 (if the foamies will do you can buy’em for about 12 cents each in a bucket of 200) as opposed to spending $1300.00 on a suppressor for your AK/AR-some number or another.

The GOP tax cut legislation, which somehow is being titled “reform,” is a walloping giveaway to the top income earners in the U.S.  Not sure about this? See the Institute on Taxation and Economic Policy, that tells us those in the bottom 20% will see 1.3% of the tax benefits while the top 1% will enjoy 67.4%. Bringing this closer to home, the top 1% of income earners (which amounts to about 0.4% of our population) will get a 70.7% share of the tax cuts. For all that chatter about the Middle Class, the plan doesn’t really help middle class Nevadans:

“The middle fifth of households in Nevada, people who are literally the state’s “middle-class” would not fare as well. Despite being 20 percent of the population, this group would receive just 4.6 percent of the tax cuts that go to Nevada under the framework. In 2018 this group is projected to earn between $38,900 and $60,600. The framework would cut their taxes by an average of $380, which would increase their income by an average of 0.8 percent.”

Just to put this in context, a family in Nevada’s middle income range would see a tax cut of about $380…meanwhile back at the home mortgage, if that family is in Reno where the average home loan is about $187,000, the monthly payments are about $855 per month.  Congratulations Middle Class Nevadans, you may receive an annual prize of 44% of one month’s mortgage payment.  Color me unimpressed.

The GOP passed its version of the FY 2018 budget on a 219-206 vote.  Representative Mark Amodei (R-NV2) voted in favor of the bill; Representatives Kihuen, Titus, and Rosen were in Las Vegas attending to their constituents in the wake of the massacre at the music concert.   The AARP was quick to notice that the Republican plan calls for $473 BILLION to be cut from Medicare over the next 10 years.   Expect a cap on the Medicaid program funding; it wouldn’t be too far off to estimate cuts of about $1 TRILLION in that category.   Beware when Republicans speak of “entitlement reform,” that simply means cutting Social Security benefits and Medicare.  When they say “welfare reform,” they often mean cutting Food Stamps, Housing Assistance, and Medicaid.   Representative Amodei might want to explain why he supports cutting Medicare by $473 billion over the next decade?

Those in Nevada’s 2nd Congressional District can reach Representative Mark Amodei at 202-225-6155 (Washington DC) 775-686-5760 (Reno), or 775-777-7705 (Elko);  the office addresses are — 332 Cannon Building, Washington, DC 20515; 5310 Kietzke Lane #103, Reno, NV 89511; 905 Railroad Street, Ste 104D, Elko, NV 89801.

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Filed under Amodei, Economy, Federal budget, Health Care, health insurance, housing, Medicaid, Medicare, Nevada, Nevada economy, nevada health, nevada taxation, Politics, Republicans, Taxation

Coal Myths and Legends: North Valmy as Dinosaur in the Coal Mine

The applause line “I dig coal” may play well in certain West Virginia venues, but it’s not playing all that well with Idaho Power:

“Idaho Power says its coal plants still generate capacity during high-demand periods, but baseload from the facilities has been declining—a trend it sees continuing in the region, and nationwide.

“The decline in baseload energy production is primarily viewed as driven by low natural gas prices and the expansion of renewable generating capacity,” the utility writes in its IRP. “Because of the low natural gas prices and expanded renewable generating capacity, wholesale electric market prices over recent years have frequently been too low to merit economic dispatch of coal generating capacity.”

Idaho Power is giving serious consideration to retiring its North Valmy plant in Nevada early; notice the references to natural gas prices and the expansion of renewable generating capacity.  In short, coal isn’t coming back, anywhere.

Why? Probably because capitalism works.  

“Coal has been crushed by the shale boom, which has made natural gas — coal’s biggest competitor — extremely cheap. The price that U.S. power plants have been paying for natural gas plunged 71% between 2008 and 2016, the Columbia report found. Coal prices were down just 8% in that same period.

At the same time, coal faces new competition from the rise of renewable energy, including wind and solar. The falling cost of solar energy combined with federal tax credits have created a boom in solar jobs. The solar industry ended 2016 with 260,000 workers, according to the Solar Foundation.” [MoneyCNN]

Why would a utility, or any other business for that matter, purchase supplies from a higher priced vendor when cheaper supplies are at hand?  If you want an example of how the “market works” this is it.  Utilities are increasingly using natural gas and renewables because those sources are (1) cheaper or (2) going to be cheaper in the long run.

A second point should be made — there are two coal markets: Metallurgical coal is used primarily in steel production; Thermal coal is used for electrical production.  Prices for metallurgical coal, also called Met Coal or Coking Coal, have increased as seaborne coal (from Queensland) tightens, and as supplies from Chinese mines diminish as their mines come under increased scrutiny about safety concerns.  The price of Met Coal is a function of not only American mines, but of Australian and Chinese sources.  The price of Thermal Coal has been declining since 2012 and doesn’t show any signs of reversing that five year trend anytime soon.  This is not a case of “if you mine it they will come,”  even with the decline in Thermal Coal prices, the price of natural gas and renewables are still putting pressure on the market.

The Columbia Study (pdf) explains, once again, how capitalism works.  What are the causal factors in the collapse of the coal mining sector of the economy?

“US electricity demand contracted in the wake of the Great Recession, and has yet to recover due to energy efficiency improvements in buildings, lighting and appliances. A surge in US natural gas production due to the shale revolution has driven down prices and made coal increasingly uncompetitive in US electricity markets. Coal has also faced growing competition from renewable energy, with solar costs falling 85 percent between 2008 and 2016 and wind costs falling 36 percent.”

Thus, bolstering the contention made previously that prices matter, and if lower prices are available for some commodity, then that’s where the “market” will go.  There are other factors: (pdf) A slowdown in Chinese manufacturing demands; deregulations may not have any significant effect on mining if the prices for natural gas and renewables continue to decrease; and, while we might expect a modest recovery to 2013 levels — that’s probably all that can be squeezed from this market.

So, Idaho Power/NVEnergy’s decision to concentrate on production using more renewables and natural gas is likely to be sound economically for long term corporate health — and the old coal-fired North Valmy plant sits like a Jurassic Creature in Pumpernickel Valley.

As for employment prospects, coal mining isn’t a growth industry: (pdf)

A plausible  range of US coal mining employment in these scenarios ranges from 70,000 to 90,000 in 2020, and 64,000 to 94,000 in 2025 and 2030 — lower than anything the US experienced before 2015.

Thus, basing economic policy on a sector which includes only 0.03% of our national economy makes precious little sense.  It makes even less sense to look backwards:

“When it comes to electricity generation in the US, the Department of Energy’s 2017 Energy and Employment Report suggests that the solar industry now employs more people than coal, oil, and gas combined. Oil still employs the largest share when including jobs related to fuels, however.

“Our findings would lead us to believe that the right place to invest dollars are in renewable energy rather than fossil fuels,” Delaney says. “These jobs are widely geographically distributed, they’re high paying, they apply to both manufacturing and professional workers, and there are a lot of them.”

How about job training for those seeking to move from a declining sector to sectors with more hiring prospects?  The Trump administration has lauded the prospects of job re-training and apprenticeship programs, but the money isn’t where the mouths are:

“Trump has proposed cutting the Labor Department’s budget by 21 percent in fiscal 2018.  That includes a 40 percent cut to the Labor Department’s Wagner-Peyser Employment Service, which supports about 14 million job seekers annually and last year helped nearly 6 million people find jobs. The proposed cuts also include a $1.3 billion reduction to programs that operate under the Workforce Innovation and Opportunity Act, which Congress reauthorized in a bipartisan move three years ago.”

Drilling down to “coal communities,” the impact is patently worse:

“Based on the limited information provided by the blueprint, President Trump’s FY 2018 budget would cut at least $1.13 billion from these programs and offices, including several in their entirety—a total that may increase when the full budget is released in May.2 Through the POWER Initiative, offices and programs targeted by the cuts funded more than $115.8 million in economic development, job training, and other grant projects targeting coal communities in more than 20 states from 2015 through early 2017.”

It is egregiously unseemly to give pep talks about “digging mining,” in coal country while slashing budgets for economic development and job training for the people facing declining employment prospects in the mining sector in those communities.  Indeed, the current administration gives every impression of saying “we love you,” to coal country residents while allowing greater pollution of their cities and towns, and cutting job training opportunities for residents seeking employment in faster growing sectors of the regional economies.

Meanwhile, the North Valmy plant stands in Pumpernickel Valley.

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Filed under ecology, Economy, energy, energy policy, Nevada economy, Nevada energy, Politics

Amodei, Your Banker’s Best Friend

House Roll Call Vote 412 wasn’t one of those votes likely to draw much general media attention, even its title seemed designed to induce yawns: “Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by Bureau of Consumer Financial Protection relating to “Arbitration Agreements.”  Representative Mark Amodei (R-NV2) voted in favor of this measure on July 25th, and few noticed, much less commented.  It’s a small thing, but indicative of a mindset that favors the Big Banks over the interests of American consumers.

Background

 “In May 2016, the CFPB issued a proposed rule prohibiting predispute arbitration agreements in providing consumer financial services products. This rule would prohibit mandatory predispute arbitration agreements in consumer agreements for items such as checking or savings accounts, credit cards, student loans, payday loans, automobile leases, debt management services, some payment processing services, other types of consumer loans, prepaid cards, and consumer debt collection. The rule would also prohibit predispute arbitration agreements in connection with providing a consumer report or credit score to a consumer or referring applicants to creditors to whom requests for credit may be made.” [ABA]

Translation:  For “predispute” read Day in Court, as in the rule prevents a financial corporation from requiring arbitration before a person can take his or her case to court as a member of a group of consumers who have been hurt by the financial institution’s action or actions.   The Consumer Financial Protection Bureau explained:

“Many consumer financial products like credit cards and bank accounts have contract gotchas that generally prevent consumers from joining together to sue their bank or financial company for wrongdoing. These widely used clauses leave consumers with no choice but to seek relief on their own – usually over small amounts. With this contract gotcha, companies can sidestep the legal system, avoid accountability, and continue to pursue profitable practices that may violate the law and harm countless consumers.”  (emphasis added)

And, Representative Amodei supported the legislation to disapprove of this rule which was an attempt to protect consumers from actions like the following:

The poster child of bank malfeasance, Wells Fargo’s  —  “admitted its employees systematically created millions of sham bank accounts in its customers’ names, and then in many cases fraudulently billed those same customers for fees and services they never agreed to. Executives of the megabank knew this was happening but did nothing. Then, they decided to blame 5,300 “rogue” employees, who were summarily fired. Now, to ward off thousands of lawsuits, the company is hiding behind binding arbitration clauses in its victims’ contracts.” [USNWR]

And, there’s this —

“Military readiness has been negatively affected by unscrupulous payday lenders who prey on military servicemembers and veterans. The victims become overly indebted thanks to exorbitant interest rates and hidden fees they don’t understand, and then find themselves unable to obtain relief thanks to forced-arbitration clauses. Because of this, the Military Coalition, which represents nearly 6 million uniformed service members, veterans and their families, has formally petitioned Congress to ban the clauses.”  [USNWR]

It’s hard to imagine siding with unscrupulous bankers against the interests of enlisted personnel who are in the E6 to E9 ranks  in which pay runs from $2,486.99 to $4,186.09 for a person with more than eight years service, however Representative Amodei found a way to do it.  The problem became such a persistent issue for the military that in 2007 the Department of Defense started enforcing the Military Lending Act to protect its service personnel. However, pay day lenders found loopholes such that they could re-introduce their ‘products’ to members of the military. [MrktPlc] Who would support legislation designed to force members of the Armed Services to accept arbitration before they could have their day in court?  Representative Mark Amodei (R-NV2) and his Republican cohorts in the 115th Congress.

What makes this vote particularly noticeable regarding the protection of bankers is that there are ways — at least two — to ‘prevent’ that bete noir of all Republicans, the consumer lawsuit, without pitching the baby out with the bath water.

The first way would be to make all arbitration voluntary.  Companies could save time and money, and avoid publicity IF the consumer agrees.  If there is no agreement then the case goes to court.

The second possible solution would be to put the arbitration on a “business pays” status.  The American Bar Association offers this common sense proposal:

“The CFPB should require any consumer arbitration to be fully business-funded at no cost to the consumer. When a business faces transaction costs of nearly $2,000 per arbitration filed, repeat consumer filings will attract its attention. In addition, the CFPB could consider requiring that any consumer arbitration which results in a favorable consumer award on the merits should be awarded treble damages and attorneys’ fees. This provision would include a sort of “built in” incentivizing provision. The goal of this provision is to encourage organically what we already see occurring, increased settlement of consumer disputes. Still further, the CFPB should require that any consumer arbitration award must result in a written statement of decision, which permits other consumers to know how the arbitrator applied the law to the facts of that case. This will facilitate consumer knowledge of potential corporate overreach (and encourage more recovery), and will also help aid the consumer in arbitrator selection.”

In short, it is not necessary to go full-bore all-out in support of the banksters among us in order to prevent the unscrupulous from skinning the unwary or uninformed, but that’s what Representative Mark Amodei did on July 25, 2017.

Perhaps this may be explained by the fact that as of May 2017 Representative Amodei received $8,000 in donations from commercial banks for this election cycle, another $7,000 from credit unions, and $1,000 from finance and credit companies.  Or maybe it relates to the $25,000 he’s collected from the American Bankers Association over his political career?  Whatever the motivation, it’s clear that Representative Mark Amodei is placing the interests of the bankers above those of American consumers.   This situation could be rectified in 2018.

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Filed under Amodei, consumers, Economy, financial regulation, Nevada economy, Nevada politics, Politics

Deregulation isn’t the solution, it’s the problem

Representative Mark Amodei (R-NV2) was pleased to vote for the so-called “Choice Act,” which rolls back some of the reforms enacted in the wake of the Wall Street casino debacle and subsequent recession as the Great Wall Street Derivative Monster collapsed like an air dancer in a Nevada wind.   The theory behind this ridiculousness is that regulations restrict commerce, and a restriction of commerce diminishes wealth, therefore diminished wealth impacts investment, ergo diminished investment equates to a limit on economic growth.  Not. So. Fast.

Yes, regulations restrict “commerce,” but only some kinds of “commerce,” generally the fraudulent variety.  I am free to issue shares of stock in my corporation — however, I am not free to issue shares of stock in the Reese River Steamboat Company.  Some sharp soul offered shares of this highly dubious company during one of the mining booms, and assuredly some investors were cheated by this obviously fraudulent sale.  We have regulations to prevent this.  We have laws and related regulations to prevent insider trading, to prevent “blue sky” stocks, and to reduce the possibility investors are cheated by financial products which promise high returns with little or no risk.  Sometimes the adage, “If it looks too good to be true, it probably is,” isn’t quite enough to prevent mismanagement of other people’s money.

Recently, Wells Fargo was found guilty of violating regulations and laws relating to the creation of phony accounts, the fine totaled a massive $185 million and some 5,300 individuals were fired. [NYT] The situation was all the more egregious because the bank was ripping off its own customers.  $100 million of that fine was the highest penalty the CFPB ever levied against a financial institution.  This is precisely the agency the so-called “Choice Act” wants to ham-string.

The “Choice Act” would eliminate the regulation regime which was intended to prevent the collapse of banking institutions.  Just for the record, let’s look at the list of US institutions that either disappeared or were acquired during the Great Recession: New Century, American Home Mortgage, Netbank, Bear Stearns, Countrywide Financial, Merrill Lynch, American International Group, Washington Mutual, Lehman Brothers, Wachovia, Sovereign Bank, National City Bank, CommerceBancorp, Downey Savings and Loan, IndyMac Federal Bank, HSBC Finance Corporation, Colonial Bank, Guaranty Bank, First Federal Bank of California, Ambac, MFGlobal, PMI Group, and FGIC.

If we extrapolate the “let the market sort it out” argument to its conclusion — it’s acceptable to allow banking institutions to over-extend themselves to such an extent that they will ultimately collapse; that’s just the market “at work.”  Fine, if the impact of such deregulation solely impinges on the banking institutions themselves, but that’s not what happens in the real world.  In the real world such supposedly safe havens (money market accounts) were in peril:

“A little over a year ago the collapse of Lehman Brothers sparked heavy redemptions from the dozen or so money market funds that held Lehman debt securities. The hit was particularly hard at The Reserve Fund, a money market fund that had a $785 million position in Lehman commercial paper. Soon The Reserve saw a run on its Primary Fund, spreading to other Reserve funds. Reserve tried to furiously sell its portfolio securities to satisfy redemptions, but this only depressed their values.

Despite its best efforts, The Reserve Primary Fund couldn’t find enough buyers and on Sept. 16 the unthinkable happened. The Primary Fund “broke the buck,” meaning that the net asset value of the fund, $1, fell to $0.97 a share. It was only the second time a money market fund, which are commonly thought of as guaranteed, broke the buck in 30 years.”

Meanwhile in Nevada, unemployment soared to 14+%, the state endured being listed among the states with the highest levels of foreclosures, and it took until 2016 for the state to recover almost all the wealth and jobs lost in the aftermath of the deregulated Wall Street casino debacle. [LVRJ]

Deregulation may sound fine when discussed in theoretical, ethereal, terms, it obviously didn’t work in the real world in which Bear Stearns, Lehman Brothers, WaMu, and IndyMac collapsed, and where the Reserve Primary Fund “broke the buck.”

The questions someone should ask of Representative Amodei, and other “deregulators,” are:

(1) Do you favor a return to the regulatory environment in which investment banks were allowed to over-extend and engage in risk taking far beyond their capacity to remain solvent?

(2) Do you favor a regulatory environment in which those being regulated are allowed permission to “self regulate,” without oversight from governmental agencies and institutions?

The second question is particularly important because it addresses the question of trust in commercial relationships.

The most basic of all commercial relationships is the simple act of buying and selling.  I have something to sell, and there is a potential customer for my goods or services.  This is another point at which deregulation can easily become part of the problem.  If I am selling food, there are self-evident reasons for regulating the conditions under which that food is prepared and served to the general public.  Deregulation invites disasters of the public health variety.  We trust that the food offered for sale by restaurants and groceries is safe for consumption.

If I am selling financial products does the buyer (consumer) have the expectation that my product is what it purports to be?  That it is backed by sufficient funds for ‘redemption?’ That it conforms to the standards of acceptable practices?  And, if it doesn’t, are there avenues of redress such that the consumer can be compensated?  In short, can the customer be assured that he or she can trust the product?

If I am selling a manufactured product, can the consumer trust that the item was produced in a safe way, that the product will perform as advertised, that the product will not create a hazard in my home or office?  There are voices on the fringe of Free Market thought calling  for the abolition or at least the restriction of the Consumer Product Safety Commivoicssion, who would love to see the return of Caveat Emptor, but most reasonable people agree that regulations pertaining to product safety are conducive to commerce, NOT restrictive.  A vehicle which meets or exceeds safety standards is more likely to be my choice than a vehicle which does not.  A vehicle which meets or exceeds fuel consumption standards is more like to be my choice than one which does not.  In short, regulatory standards benefit the best products (and their producers) while those who do not meet the standards have a more difficult time at the point of sale.  Now, the question becomes — do we want a regulatory environment which benefits the marginal, the inadequate, or perhaps even the corrupt producers?

Unfortunately, the deregulatory voices are answering this question in the affirmative.

Is this really the answer Representative Amodei and his cohorts want to give to constituents in the Second District? In the US?  To our customers around the world?

 

 

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Filed under Amodei, banking, Economy, financial regulation, Foreclosures, Nevada economy, Nevada politics, Politics