In recent months, America’s Finest City has seen its most civic-minded brains eaten not by zombies, but by a long-empty downtown office building. Perhaps compensating for the absence of typical Halloween rites, San Diegans have grown so frighteningly obsessed with the horrors at 101 Ash Street that they sometimes seem incapable of discussing anything else.

“Are we going to be proud,” asked Voice of San Diego CEO and editor-in-chief Scott Lewis in a recent Tweet, “that, during this pandemic, with our lives completely upended and the future of things like schools and libraries and the economy in doubt, so much of the local election was about this building?”

To make a long ghost story short, in 2016 the city government negotiated a complicated 20-year, $127 million lease-to-own agreement for the 19-story, 315,000-square-foot property. The deal was portrayed as a way to save $44.4 million and to house at least 850 city workers in a modern office building. Little more than a power wash would be needed before employees moved in.

That move still has not happened.

For reasons that are now the subject of constant speculation and investigation, city officials never inspected 101 Ash for ghosts, goblins, and other deficiencies before they signed on the dotted line. Eventually, it emerged that 101 Ash—which was built in 1968 for San Diego Gas & Electric and was most recently the headquarters of Sempra Energy—had asbestos contamination and issues with so many of its systems—electrical, elevators, plumbing, heating—that it would cost the city an additional $115 million to make the building safe to occupy. Meanwhile, the city has been left paying $535,000 a month to lease a space it can’t use.

The problems with the building received some notice in 2018, but they’ve exploded into public consciousness in this election year. Local media competed to offer new explanations of how the city could have been so dumb. (One outlet even published a piece based on forged documents.) An audit commissioned by the city showed that local officials accepted the seller’s claims that the building was in good shape. A reporter, using an investigative tool known as a “Google search,” discovered California Public Utilities Commission testimony from 2014 stating that Sempra had considered the building “functionally obsolete” because of asbestos and earthquake vulnerability.

Who’s to blame? There are so many different suspects that the fiasco resembles an English murder mystery—albeit one with more sunshine and better fish tacos.

The city bureaucracy has been blamed for incompetence, and some city real estate management employees were pushed out. Elected officials have been accused of politicizing city departments to the point that they were too cowed to challenge the lease agreement. The real estate company that brokered the deal has been blasted by everyone, especially since the contract had unusually strong language shielding the firm from liability. A previous owner of 101 Ash emerged to say he had notified the city about the asbestos and that the building had otherwise been in good condition before the city took it over.

The top candidates for mayor, City Councilmember Barbara Bry and Assemblyman Todd Gloria, a former councilmember, took responsibility while also shifting blame onto each other, and San Diego’s political culture. “I’m tired of us being a big city that acts like a small town,” Gloria declared during the campaign. “We keep making these small-town mistakes.”

As if to prove Gloria’s point, San Diego’s city attorney Mara Elliott added a note of small-time farce by trying to plug leaks from city council members and threatening criminal prosecution against a local journalist for possessing confidential city documents.

Calling the incompetence “impossible to exaggerate,” the San Diego Union-Tribune recited a litany of unforced errors over the past 25 years—from pension schemes to giveaways to the now-departed Chargers football team—and asked why the city can’t govern itself. Some critics pointed to the insular political culture, in which too few people talk to each other and share information. Others noted the outsized power of developers and campaign contributors, pointing in particular to a part-ownership stake in the building held by the powerful local businessman “Papa Doug” Manchester, a supporter of Mayor Kevin Faulconer.

The biggest share of the blame belongs to Faulconer, a moderate Republican who is leaving office this fall and had been considered the strongest challenger to Gov. Gavin Newsom in 2022. Faulconer, who made and promoted the deal, has damaged his credibility locally. If he still runs for governor, voters statewide should demand a full accounting.

But whoever is to blame, San Diego hasn’t produced any good answers yet for what to do about 101 Ash. Right now, the city wants to stop paying the lease and void the contract, which may only produce more costs in the form of legal damages.

Turning 101 Ash into a haunted house story for the whole state might be bad for Faulconer, but it would be healthy for Californians. We too often allow our leaders to rush into consequential decisions with little scrutiny, which is one reason why city halls in San Francisco and Los Angeles also face large and growing scandals right now.

More vitally, 101 Ash might get us to think more strategically about all the empty buildings the pandemic will leave behind. Californians might be tempted to laugh at this San Diego saga, but this movie is less Anchorman and more Paranormal Activity, the 2007 film about a couple who can’t figure out what is happening in the San Diego home they’ve just bought. And with office vacancy rates tripling over the pandemic, the rest of California could face similar nightmares.

Empty buildings are destabilizing anywhere because they are voids upon which we project our darkest fears (what might be lurking inside?) and our most peculiar ideas (what might we finally do with a blank slate?). In California, empty buildings can be especially dangerous, as our outsized dreams and powerful real estate interests make us do strange things.

California would do well to take this moment to survey and re-examine our entire built environment. What is the most efficient way to renew the state’s rapidly aging, decaying housing and building stock? Which empty commercial and office buildings should be knocked down for open space, and which might be profitably repurposed? Intriguingly, Prop 15, the property tax measure on the November ballot, might give us a clearer picture of our buildings, since it would require extensive new appraisals of commercial real estate over the next five years.

101 Ash may be empty, but it is full of lessons for Californians. Let’s not spend too much on our glut of empty buildings. Let’s not invest too many hopes in any single structure. And before you lease or buy your own haunted haunt, don’t be afraid to go inside and inspect the place for yourself

The post The Zombie Building That Ate San Diego appeared first on Zócalo Public Square.

OK, as a budget fund without acting credits, I shouldn’t expect Greta Gerwig to put me in her next film—even if both she and I are Sacramento natives. But the time is coming—quite quickly—when I, California’s humble Rainy Day Fund, will stand at the center of our state’s civic stage, and my fellow Californians will finally have to pay me the attention I deserve.

I’ve had to stand on the sidelines for the past decade, like the kid ignored on the edge of the dance floor, while Californians partied through one of the longest economic expansions in our history. Yes, it’s true that this expansion made me a billionaire many times over—in fact, if I were human, I’d rank right between Elon Musk and Laurene Powell Jobs on those business magazine lists. But my real time is the bad times.

Oh, and look, what do we have here? The coronavirus and a monster stock market crash! Do I smell a recession and a huge drop in tax revenues? Because that’s my cue!

My role is to be the adult fund in the room, holding onto my cash instead of spending it constantly, like the thousands of other state government funds do.

I have to be stable and dependable because you Californians are so crazy and volatile. Your incomes, your business receipts, and your investment earnings go up like rockets and down like, mmm, bad rockets, which then open up giant holes in the state budget. And it’s my job to rush in with the funds I’ve been holding onto and plug those holes.

But I must confess to being a bit nervous about the hole-plugging, because, well, I’ve never done this before.

Yes, Prop 58 created me in 2004, but in that decade, I was so empty that there was nothing in me for the state to tap when the Great Recession hit. In 2014, voters took steps to enhance me via Prop 2, and ever since, I’ve been filling up with money.

But I’ve never had my funds drawn down in an economic downturn. I’ve been sitting on the shelf so long—like an old can of soup or a two-term vice president—that no one can be sure I’ll be able to do the job when I’m needed. Can I really prevent teacher layoffs, shore up Medi-Cal, or provide money fast enough to slow down a pandemic?

Few people, in fact, even know how I really work. Even my former significant others will tell you that, while I always insisted that I was truly there for them in our relationships, they eventually found me too complicated.

For one thing, while I’m called the Rainy Day Fund, I actually encompass more than one account. Most of my billions are in what is called the Budget Stabilization Account, but I also have a few billion in the Special Fund for Economic Uncertainties and the Safety Net Reserve. The Public School System Stabilization Account is also part of me, but there’s not much in it, with education instead depending on local school district reserves. (Good luck with that, kids!)

Like so much else in California, I’m governed by formulas. The gist of me is that I’m supposed to get 1.5 percent of the state’s general revenues each year; I also store away more money during stock market booms, when capital gains tax revenues peak.

My success in storing money has really surprised the state. Back in 2014, when I was enhanced by the voters, the best guess is that I would be very small, gathering maybe $1 billion a year. But I’ve grown at more than three times that rate, making me as swole as Schwarzenegger before he went into politics. Today I’m worth around $20 billion.

Why did I get so big? Governor Brown and Governor Newsom figured out that I was a great place to put money—and so they have put more money into me than required. They had their reasons. First, when you make a deposit into me, it’s easier to balance the budget, because of the way the budget formulas are written. Second, governors love the fact that the legislature has so little power to access my funds. For the state to get at my money, the governor has to declare a state of emergency. So the bigger I am, the more leverage a governor has over the legislature!

Governors also liked the fact that putting money in me made them seem fiscally prudent—giving them cover for new spending in other areas. And my badge of fiscal prudence is one of my finest features: Some think I singlehandedly restored California’s credit ratings. I’ve created a culture where the budget cool kids in Sacramento have arguments over how to most rapidly pay down debts.

In recent years, the biggest controversy about me has been whether I’m too big—and whether I should be tapped to handle urgent needs like homelessness, housing, and health care.

But, as the economy takes a bad turn, I’m steeling myself for contention—maybe even struggles and fights. I fear that, as huge as I am, I won’t be able to handle a bigger recession, which could cost the state revenue of $100 billion or more over four years.

Even if we have just a teeny tiny recession, the rules for tapping my dollars are arcane and untested, and there are competing legal opinions about who they would work. For example, if state revenues collapse over a coronavirus cliff and abruptly go down $20 billion this year, the rules suggest that only half my money—$10 billion maybe—could be tapped to fill the hole in one budget year. The other half of the hole would have to be made up with budget cuts or tax increases.

One reason I’m writing this is to manage expectations, and to let you know that I can’t handle an economic crisis alone. I need the help of California and its lawmakers, who should start making budget plans for a recession right now.

At the very least, they should redesign me for the future, so that I might be more easily and quickly used in an abrupt or dramatic downturn, like the one we’re about to go through. I also should be allowed to grow bigger during good times, and thus provide more of a cushion during bad times.

In other words, while I’ll be there for you, I can’t do everything for you. You have certain obligations from which you can’t run.

And my presence should keep reminding you of those obligations. To quote a favorite movie of mine, Fatal Attraction, I am not going to be ignored.

The post Meet the Not-At-All-Human Multi-Billionaire Who Is Supposed to Save California appeared first on Zócalo Public Square.

This is the downside of regulations, enacted after the Great Recession, that made banks safer than ever. Unfortunately, those same regulations also caused banks to focus on mortgages and publicly traded loans, rather than lending to growing private companies. This dislocation may explain why the economic recovery since 2007 has been the most tepid in the past 50 years.

Middle market companies in the U.S., defined as companies with between $10 million and $100 million in revenues, account for 24.6 percent of all U.S. jobs and almost $6 trillion in total revenues. These 351,148 companies have been left behind by requirements that banks hold larger reserves against potential losses. This effectively penalizes banks for providing customized loans to private companies which must be retained on their books, and encourages banks to engage in activities that can be bundled up and sold to investors. Banks today will also lend to companies owned by private equity firms, because they are deemed to be less “risky” since they are under the control of professional investors, who have become huge players in buying control of middle market companies.

So when you operate a firm independently or family-owned and without a major financial sponsor such as a private equity firm, you fall under the category of “non-sponsored.” If you’re “non-sponsored,” banks won’t lend you enough to grow to seize the emerging opportunities in the economy.

The result: while large corporate behemoths like General Motors and Apple are sitting on piles of cash and still raising more with cheap debt, their suppliers and partners—smaller private companies that make car seats or manufacture iPhone accessories—don’t have financing for working capital or capital expenditures to keep up with growth.

Banks are required by regulators to hold a minimum amount of cash in reserve and they can lend the rest to borrowers. Under Basel III rules adopted by the Federal Reserve, banks are required to hold at least 8 percent of cash against the simplified measures of risk in their loan portfolios as determined by the regulations. Prior to Basel III, the minimum was 2 percent. The result? A giant chunk of money that could be going to borrowers is now sitting idle, in bank reserves. In 2011, bank reserves zoomed to $2.6 trillion, from just $55 billion in 2008, according to the Federal Reserve.

It gets worse. For loans to small and medium-sized businesses, banks must hold up to five times more in cash reserves than for rated public debt to larger companies. If a bank makes a loan to a small business, it must hold the equivalent amount of cash in reserve in case the business defaults. In contrast, if a bank provides a commercial mortgage or a large company loan, it only needs to hold 20 percent of the value it lends. That is because those loans can be packaged and sold by the bank in large bundles to the public markets, (For those of you who have read or watched The Big Short, this process is called securitization). And for the biggest banks, which account for 95 percent of the industry, Basel III requires those institutions to maintain double the ratio of cash reserves to their total potential losses.

As a result, banks avoid unrated and highly customized middle market loans that can’t be bundled up and securitized. Instead, they now focus heavily on the syndicated loan and public bond market, where the loans range from $100 million to $1 billion. Bank lending peaked in 2000 at $500 billion in quarterly volume and remains below that level today.

In contrast, corporate bond issuance has grown from $2 trillion quarterly in 2000 to $4.5 trillion quarterly this year. Banks prefer to take lower returns from potentially risky bonds and syndicated loans because they don’t have to maintain the same level of reserves to cover potential losses. Banks can buy five times as many of these readily available bonds and syndicated loans with lower operating costs than is required to maintain a national network of loan underwriters and the required reserves.

These realities have made the local community bank an endangered creature; the number of banks in the U.S. fell from 15,000 to 5,000 over the past 30 years. The shrinking number of institutions has been driven by consolidating branch networks, community bank failures, and by the rise of non-bank finance companies specializing in consumer mortgages, once the bread-and-butter for local banks. Adding to the problem is the Dodd-Frank legislation. Named after its co-sponsors, Senator Chris Dodd and Congressman Barney Frank, the act aimed to curb the financial risk that led to the meltdown in 2008, but it has had multiple unintended consequences, among them additional costs and compliance pressures on community banks, forcing them to engage in further consolidation.

Finally, there’s the Volcker Rule, which is nested inside of Dodd-Frank. First put forth by former United States Federal Reserve Chairman Paul Volcker, the rule clamps down on banks’ ability to make speculative investments by prohibiting them from engaging in proprietary trading activity.

This rule led to the dismantling of large proprietary trading desks at major banks, which engaged in both private equity and private debt activity. That means fewer avenues of financing for mid-sized firms.

That’s why I left a career in private equity, where there is an overabundance of capital and talent chasing a handful of big ideas and too many small ones. Instead, I started a firm, Lateral Investment Management, that addresses the growth capital needs of growing and independent companies that have no private equity sponsor.

The company is built on the belief that there is a huge opportunity to partner with great owner-operated private companies that want to stay independent. Opportunities abound for growth amid upheaval in the healthcare industry, the rebirth of domestically oriented manufacturing firms, and pressing needs for infrastructure upgrades. For investors, non-bank lending to the most successful middle market companies may be the most compelling investment opportunity available today.

While the stock market continues at all time highs, the U.S. economy sputters along and struggles from the bottom up. There’s no question that the U.S. banking system is much safer than it was in 2007, but the price tag of the solutions cobbled together by the Bush and Obama administrations, Congress, and the Fed may have been more expensive than we can afford. The American ideal of the successful and thriving independent proprietor business—which has traditionally been an important engine of growth for the U.S. economy—is at risk.

The post Why Your Bank Wants No Part of Your Business appeared first on Zócalo Public Square.

Barcelona is a great place to have a kid. Max is in his first year of free preschool offered at the same primary school he’ll attend to age 12, before heading to one of the public high schools and maybe the $1,500-a-year public university. Add a park every two blocks and free public health care and you have paradise for raising children. Which is what makes it odd that hardly anyone is having any. Anyone except foreigners.

When we’re not crocodiles, I am American and my wife is from here, from a Catalan town 40 miles outside of Barcelona. Among her local friends, she is the rare one who’s had a child. Among Max’s friends—the other three-year-olds at Diputacio—our binational marriage seems like a trend. About a quarter of his 26-child class seems to have a similar story: a Catalana mother, and one parent from elsewhere in Europe, Africa, South Asia, or the Americas. At least in our school, children with one parent from abroad appear to outnumber classical migrant families.

This caught my eye because Spanish fertility is at historically low levels. Earlier this year, the local census figures showed that women of my wife’s generation—the generation just hitting 40—have so far had the fewest children per capita of any Spanish generation since the 1870s. According to Eurostat, the European Union’s statistical service, Spain has the second-lowest birth rate on the continent. For every four women in Spain there are just five kids. My wife’s mother had three children, which was almost exactly the average for 1975, when four women gave birth to 11 kids.

Fertility matters for a lot of wonky reasons—who will pay the pensions? But, lately the conversation in Europe has been less about intergenerational economics than about politics. The trope, flatly racist, is that foreigners come and they breed like an invasive species, imposing foreign cultural norms and draining the public service budgets. The discussion feeds a lot of European paranoia (and increasingly American, too) that lives around the intersection of biology and borders, in which everything from abroad is framed as potentially viral: poverty, extremism, Zika, Ebola. My work as a journalist has me accustomed to hearing these accusations around the edges of refugee camps in Calais, France, and along a border wall dividing the EU from Morocco. But when I come home from those places, I’ve also seen the start of a more hopeful discussion about Europe’s future, by walking into Max’s school.

I am not a demographer. Numbers on European migration are easy to get, but a sense of how many newcomers end up starting families with locals is a bit too esoteric a number to nail down, so far.

But I see my family fitting into some kind of change. Our social life has broken down by national as well as procreative lines—and that’s turned out to be the same line. Like many new parents, Max’s arrival has meant new relationships with parents of kids of the same age, and more often then not one of them is from outside Spain and usually outside Europe. Our Catalan friends, meanwhile, are the ones we need to get a babysitter to see; they don’t have kids, so they go out later. When we recently saw an old university friend of my wife’s for lunch with her new beau, Max did have a playmate his age there. The beau was from Argentina, and has a small son.

What has happened here? My wife is part of a baby boom generation that has faced a historical whipsaw, from excessive optimism and sudden affluence to a failure of confidence in Europe and a sudden loss of security. When Franco, that crusty old Spanish fascist, died in 1975, my wife’s mother and her friends could finally join the 20th century. They had large families. Those kids grew up in an era of social reconstruction and torrid economic expansion. Jobs were easy to find, and growth seemed inevitable. In the 1990s, people ascribed falling birth rates in Spain to an embrace of modernity and prosperity.

But by the early 2000s, that boom overheated. Spain’s young men left high school to work as builders. In 2004, a young man could make $40,000 a year swinging a hammer, double what his father earned.

Compared to the men, the women stayed in school, targeting secure jobs in the public sector. Career counselors would tell new college grads to earn the equivalent of tenure within about a decade, and in many cases such new opportunities for women delayed childbirth. A 30-year-old woman could then settle down with her future assured. When my wife and I met in 2006, she was working for the government as a librarian, patiently acquiring “points” toward her tenure.

Three years later—about the time we started thinking about kids—the bubble had popped. Spanish unemployment soared to Depression-level numbers: 50 percent for under-25s. All those guys who’d dropped out of school had neither jobs nor degrees. My wife and her friends were the age their mothers were when Franco died and the Spanish miracle began; now they were going to watch it unravel.

As the crisis dragged on, the future failed to materialize. Unemployment was still nearly 30 percent in 2012. If you were single, you had to be very lucky to meet a man or woman capable of being an equal partner in the family’s financial or emotional stability.

Max came along when the crisis was nearly five years old. We weren’t necessarily more optimistic than most Catalans, but you can’t always let macroeconomics dictate your life. Plus, mixed marriages like ours do have the advantage of a hedged, diversified bet. Our family would live in Barcelona, but I would not be solely dependent upon the local economy—I am able to work for clients abroad.

I do not believe my wife married me in 2009 for my blue passport, or agreed to have a child with me in 2012 for it. Nor did I marry her for the free health care or automatic residency in the rest of Europe. But I can certainly report that we married with the understanding that her passport gave us access to European social services, and mine gave us access to the United States and its economy.

We’re betting that being binational will be an advantage in the future. Where my New York grandparents went out of their way not to teach me any of the Russian, Romanian, and Yiddish they spoke, we are insisting Max speak Catalan, English, and Spanish. Rather than encourage him to have a national identity, we are encouraging him to have a transnational one. He’ll need to find stability for himself over and around borders.

I also want him to be able to see both his homes with a foreigner’s optimism. When his mother complains that ticket prices for Spanish trains have soared 200 percent, I want him to marvel, as I do, at how well they work anyway. Spain, even in its lowest moments, still feels like a miracle to me, with its low crime rate, healthy diet, and long, generally happy lives. And I hope he has a European’s fascination with American indifference to obstacles, the can-do culture that feels like a cliché to me, but is clearly part of my makeup.

I’d like to think that as Max moves on from his crocodile phase, the EU will move on from these vicious discussions about borders, migrants, and viruses. Someday there will be enough Maxes in the schools to make the borders—and the arguments—less meaningful.

The post My Transnational Son Has a Passport to Optimism appeared first on Zócalo Public Square.

“In order to save, you need to have income from which to save,” he said. If every nation tries to save at once, no nation generates any income, no one buys any products, GDPs shrink all around, and debt grows. Austerity only sinks economies deeper into their economic troubles—and places an undue burden on the most vulnerable.

In Europe, said Blyth, “Every single country that has gone on an austerity program has gone into more debt, not less.” Unemployment is rampant throughout the E.U.; In Greece, youth unemployment has hit 60 percent. The policy of the European Commission is for nations to lower wages and prices in order to become globally competitive with their exports. But the nations of the E.U can’t all run a trade surplus at once. “There’s only one country that can make and sell BMWs,” said Blyth. Everyone else needs to buy them. The entire E.U. can’t become a giant Germany.

Unlike the United States, Europe can’t solve its crisis through bailouts, because the European Central Bank isn’t allowed to bail out banks. Also, because individual nations gave away their printing presses to join the Eurozone, they can’t inflate their currencies. So austerity is the only policy left for Europe—the only way the E.U. can prevent a run on the banks. “That’s why you keep your foot on the Greeks and squeeze as hard as you can,” said Blyth. “God forbid the banks have to pay for their own mistakes.”

The American economic crisis might be over, he said, but Europe’s is just beginning. And why do policymakers think austerity is a good idea? It goes all the way back to John Locke, David Hume, and Adam Smith. Private property creates inequalities, explained Locke, and a stronger state is the only way to protect the people at the top of the heap. But that state has to be paid for—and so Hume came up with the idea of the government buying debt in order to pay for itself. Morally, said Blyth, this policy perverts normal parsimonious behaviors. People buy and sell debt. And Hume and Smith both predicted that by the end of the 1700s, Britain would be bankrupt as a result. Instead, Britain built an empire to pay for its government.

Yet we persist in cutting back. Blyth explained that people are convinced that cutting public expenditures solves the problem of national debt, while keeping taxes low convinces people to start spending. But in reality, for every dollar that was cut in Southern Europe, the IMF estimates that $1.50 was lost.

“We’re not in this mess because of spending but because of cutting,” said Blyth. Why, he asked, when we talk about “government intervention” is it always about spending rather than cutting? And, why is public spending bad and private spending good? Blyth presented one scenario that’s considered “bad” spending: a government-bought computer goes to a public university to process a form for an NIH grant; the grant funds the invention of a product that revolutionizes the biotechnology industry and creates 100,000 jobs 10 years down the line. Yet we consider someone buying a computer at a Mac store “good” spending.

So why do we keep cutting? Quipped Blyth, “Because mere facts are never enough to get in front of a good ideology, particularly one that’s 400 years in the making.”

One audience member asked Blyth how much austerity is driven by public perception. A lot, he said—and yet there’s a very simple story that can end arguments about austerity’s efficacy.

People like to say that the government’s like a family—if it spends too much, it just has to stop spending. But, said Blyth, families don’t issue their own, internationally tradable paper. Families don’t get to import other people into their families and tax them to pay for paper issued. Families don’t issue the global reserve currency everyone needs to conduct international trade. The idea that a country’s budget is like a family budget “is complete nonsense,” said Blyth. “A family can’t stimulate its way to prosperity by going shopping.” But a government can.

Another audience member asked Blyth how he thinks the government should spend its money. Blyth said he thinks spending must be “calibrated and nuanced”; he doesn’t share Paul Krugman’s bullishness on it. Public spending must enhance productivity or otherwise pay off as a long-term investment; infrastructure is a good example. “It’s not about consumption or passing the hat, but being smart about your public investment,” he said.

The post Parsimony, Be Gone appeared first on Zócalo Public Square.

“Everybody seemed to have a story they liked to tell about what went on and what to do, and they had it all figured out,” she told a standing-room-only crowd at the Goethe-Institut Los Angeles. At the same time, there was very little inclination on the part of the policymakers or banking executives to actually engage in discussion. “The narrative worked—for them,” she said.

The people at the top wanted the rest of the country to think that banking’s complicated—that we should leave it to the experts. “It’s not that hard,” said Admati. “It’s not rocket science.”

The problem, she said, is that our banking system is inefficient and exposes our economy to unnecessary risks. And these risks are the result of a system built on too much debt. If you look at banks as borrowers—as more like people who take on a lot of debt—you can find the key to understanding the problem with our financial system: our banks are addicted to borrowing, and our system feeds and enables that addiction.

Banks are unique in our economy for the levels at which they borrow; no other corporation—no other individual—borrows as much as U.S. banks do. Other corporations, like tech companies, ask investors to give them money to invest instead of going into debt. But for the banks, “our deposits are their debt,” said Admati.

Admati pointed to Cyprus as an example, abroad, of banks falling short after taking on too much risk. Cypriot banks promised people 4-5 percent above market rates—in 2008, Cyprus gave better return than Germany. Promising rates like these means taking on risks, and when the risks don’t work, the people whom the banks have borrowed from lose.

How can we fight our banks’ addiction to debt? Admati suggested that we make banks borrow less, or back up their borrowed funds not with government guarantees but with investors who buy into the banks in exchange for shares. That way, what investors are willing to pay—the market—will determine what the banks are worth.

This would be a sharp contrast to the state of U.S. financial reform today, said Admati. With our current lack of regulation and reform, she said, “The banks themselves wouldn’t lend to somebody as dangerous as they are.”

But banking reform is complicated by complex politics. One example of the argument made by politicians and bankers against new regulation is that over-regulating U.S. banks will prevent them from competing with less-regulated European banks. But that ignores every other aspect of global economic competition, said Admati. After all, the banks in Cyprus, Iceland, and Ireland were successful for a while—ultimately at a high cost to the population. And, under-regulating the banking industry gives it an edge over other industries in utilizing resources like hiring the best people. The fact that banks are allowed to win against other industries, said Admati, shows that they have a greater hold politically on the nation.

In conclusion, said Admati, although our current reforms aren’t working, they can be fixed. Excessive risk is unnecessary—and possible for us to control, contrary to what the national discourse has led us to believe.

In the question-and-answer session, an audience member asked Admati if she could name a maximum size for banks before they become “too big to fail.”

“Too big to fail” is a misnomer, said Admati—it’s not about the size of the banks but about their interconnectedness. “It’s easy to be a too-big-to-fail bank; it’s a good life,” she said. And forcing banks to borrow less will contain their size and allow pressure from investors to break them up naturally. But smaller banks fail, too. The problem isn’t the size of the banks but our inability to let them fail. “We want failure to be possible,” said Admati—for banks to be able to fail without causing the same amount of collateral damage in the process.

Another audience member asked Admati whom we can thank for our system—and for the people in power.

Citing what Lawrence Lessig calls “dependency corruption,” Admati said that in our democracy, 0.5 percent of people determine who runs for office; even though we all can vote, those who are elected are ultimately beholden to that 0.5 percent. Interest groups dominate our process, and the banks are one of the strongest. As a result, in our most recent election, financial reform wasn’t on the table.

The post Sorry, Our Banks Are Still Broken appeared first on Zócalo Public Square.

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We hear so much about presidential candidates–and so little about life in the states that elect them. In “Beyond the Circus,” writers take us off the trail and give us glimpses of politically important places. Today, Tampa.

At some point in late 2009, my young daughter became concerned about all the stores and restaurants closing in our neighborhood. She used the line she uses to this day to express concern–“there’s one thing I’m a little worried about”–and then went on to explain her worry that we’d wake up one day to find all the stores closed.

“And then we’d have to move and I don’t want to move. I love it here.”

That’s what it’s been like in Florida: it’s enough to scare a little girl. It’s enough to scare parents, too. So, we’ve taught our daughter a little saying: the only thing that doesn’t change is change. Also, change is good.

Most days we believe this.

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As of this writing, there has been only one moment I felt real, gut-clenching fear during the Great Recession and the subsequent Not-So-Great Recovery.

It was December 12, 2011. I had just been laid off from my job at the Tampa Tribune. I was one of 165 to lose their jobs in the “Christmas Massacre.” Since 2007, while surviving nine rounds of layoffs, I had started to secretly wish for the axe to fall on my head. Better to get laid off with a severance check than stay onboard until the ship hit the iceberg.

But I made the classic mistake on the way out, after getting hugs, promises to keep in touch, offers of references. As I walked alone toward the elevators, carrying the obligatory box of belongings, I stopped and turned around.

And just like that, as I looked back at a sea of empty desks–my old one among them–and the small band of former co-workers already back in front of their computer screens, blind panic seized me. I’m never coming back. The world was spinning me away from everything I had ever known.

I have a 10-year-old kid!

I have a mortgage!

The only thing I know how to do is this!

What am I going to do?

All the warmth flowed from my body, water down the drain. I turned around and got the hell out of there. If looking back at the past made the future seem overwhelming, I figured it couldn’t be worse to go ahead and rush out into it.

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Friends and co-workers have shared similar tales about such moments the past few years, moments when they couldn’t believe how bad things had gotten, moments when they wondered whether they could stick it out in Florida. Some didn’t. Most have.

Given that backdrop, Republicans picked the right spot for their convention. People here are engaged. We’re a swing state, one of the biggest prizes of the bunch, and we know it. What are you going to do for us?

You’ll have to forgive our practical disposition. The recession, the slow recovery–they’ve punched the whole nation, but here the pummeling seems particularly relentless. The Miami Herald reported earlier this summer that Florida lost $54 billion in spending and wages between 2007 and 2011. The state unemployment rate is at 8.8 percent and actually rose in July. The rate in the counties that make up the Tampa Bay area had an unemployment rate of 9.4 percent; it also increased in July.

Orlando, Tampa Bay, and the Interstate 4 corridor that runs between them are going to be hotly contested areas this fall. I assure you it’s hotly contested already at dinner parties and weekend get-togethers. My wife got into an argument about Sarah Palin with an old friend not that long ago, for Pete’s sake. Sarah Palin! People are jumpy.

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Some businesses that have closed in our neighborhood since 2007: Denny’s, Perkins, Borders Books, Honey’s (our favorite local wing spot), JJ Ching’s (our favorite local Chinese restaurant), Justice for Girls, Rita’s Italian Ice, Cici’s Pizza, Albertson’s grocery store, Tilted Kilt, Hops, TGI Friday’s.

Number of jobless people who have asked me to be a reference: 11

Number of jobless people I know willing to admit they have given up looking for full-time work for now: 2

Number of jobless people I know who were homeless for a little while: 1

My wife and I find this Florida almost unrecognizable. We arrived here 20 years ago, looking for better wages and upward mobility. We wanted to catch the wave, and newcomers were arriving at a rate of 1,000 people per day. Per day.

We came to Tampa Bay, the second most populated metro area in the state (behind the behemoth of Miami-Ft. Lauderdale). My wife worked as director of communications for a global company. I worked for the Tampa Tribune as a reporter, editor, critic, and columnist. We fell in love with the place, which is what happens when you have friends, disposable income, and 1,800 miles of beaches.

It’s difficult to overstate the sheer of fun of living here. We played tourist for years. Disney World. SeaWorld. Busch Gardens. Beaches everywhere. We rode a carriage through cobbled streets in St. Augustine. We checked out bikers at Daytona and surfers on the East Coast. We ate lobster in Key West. We drove down Alligator Alley, the convertible top down. We drank Canadian beer at Toronto Blue Jays spring training games, with Canadians.

They have sunsets here worth getting into the car and driving to see.

We bought in, literally. Moved to the suburbs, got a dog, planned a second trip to Europe, had a kid instead. I became an editor. My wife quit her day job and did freelance work from home, including restaurant criticism. We were becoming the people we thought we’d become.

Now, we’re not sure what we’re becoming. Once you let go of those old dreams, though, it’s kind of liberating. The only thing that doesn’t change is change, remember. I got a 10-year-old who could tell you that.

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Here are some real stories about what has happened to friends and former co-workers who also had to adapt to change:

• A laid off, very popular former newspaper columnist took a job as a sales clerk at a mall clothing store.
• A small business owner with a construction-related company reduced his workforce from 22 to four, sublet his office, sold off much of his equipment–but he’s still hanging in there.
• A middle manager for a large and successful corporation got divorced in 2006 right before the crash and pulled out all his equity to give his ex-wife half the value of their former home. By 2010, with the house worth far less than he owed, he simply left the keys on the counter and walked away.
• In case you think this sort of thing is over, a co-worker told me over lunch this month that he is considering doing the exact same thing. “What’s the point, man?” he said to me. “I’m never going to get that money back.”
• Also, some friends just listed their home for a short sale.
• A restaurant supplier took a second job overseeing a valet service.
• A friend who used to take me to spring training baseball games lost his job, his car, his house. Now he lives in a motel with monthly rates and continues to look for work.

Most of these people, by the way, don’t talk seriously about leaving Florida.

Our own fortunes, much like those of Florida, have improved in 2012. Three months after losing my job, I accepted an offer from a Web-based company where I now work as a “search engine optimization content editor.” I’m in an industry that is growing revenue and adding jobs. It’s less money than I used to make, and we’re using savings to pay our mortgage. But there’s a future and the people have been very patient teaching the Old Man some new Web tricks.

I’ve been lucky. Spending only three months unemployed, I never got the chance to become truly terrified. It’s worse for others. They’d like to see a presidential candidate articulate a vision for improving the economy and job outlook. Romney is getting the first chance in Tampa.

Meanwhile, we’re doing what Floridians do: going to the beach, this time for our annual pilgrimage on the last weekend before the new school year.

We’ll save money by bringing everything to eat and drink. The sunset will be free.

So, here we are.

As of this writing.

Kevin Walker works in digital marketing and is a former newspaper columnist, critic, and editor.

*Photo courtesy of MyFWCmedia.

The post My Hard Times in Tampa appeared first on Zócalo Public Square.

Before 1979, the incomes of America’s middle class grew faster than the incomes of those at the top economic echelons. But, Noah told a crowd at the Petersen Automotive Museum, “incomes have been growing more unequal since 1979–steadily more unequal.” America is experiencing what economist Paul Krugman has called “a great divergence.”

According to Noah, the great divergence consists of two separate divergences. The first is between people with college or graduate degrees and people with lower levels of education. The second is between the 1 percent (people in the financial industry and leaders of corporations) and the 99 percent (everyone else).

Twentieth-century technological advances placed increasing demands on labor that made getting a high school education necessary. In 1900, about 90 percent of the population lacked even a high school education. By the 1970s, as high school graduation rates rose along with the demand for high school graduates in the labor force, only about 10 percent lacked a high school diploma. But in 1979, the demand for workers with only high school educations leveled off as the demand for college graduates kept rising. Wages for high school graduates stagnated.

This shift coincided with the collapse of America’s labor movement, which peaked in the 1950s. Today, the ranks of organized labor are as small as they were when Franklin D. Roosevelt was elected president. “It’s as if the New Deal never happened,” said Noah. Unions no longer exert the same power over our economy.

Since 1979, the wealthiest 1 percent of Americans have doubled their share of the nation’s collective income. And although the rich were hit hard by the recession, as of 2010, 93 percent of recovery monies ended up in the pockets of the 1 percent. “This was, as of 2010, a members-only recovery,” said Noah.

A number of other causes of the income gap have been cited by economists and pundits: discrimination on the basis of race or gender, immigration, global trade, and offshoring. But most of these have had less of an effect than we think, Noah argued.

In any case, why should we care about income inequality?

Noah said he usually answers that question with a preamble: “This is not a question that anybody would have asked 100 years ago, and it’s not a question that anybody would have asked 50 years ago.” A century ago, elites were scared of rising anarchist and socialist movements and felt that income inequality had to be kept in check to avoid revolution. Fifty years ago, the U.S. was competing with the Soviet Union for the hearts and minds of the developing world, and inequality made winning more difficult. Noah said that elites in America today are less concerned about income inequality than ever before–but our concern should be growing for two reasons.

One is sociological. “Democracy really requires a thriving middle class,” said Noah. The polarization and mistrust we’re experiencing socially is damaging our political system and our unity. The other is economic. The middle class is no longer invested in the nation’s prosperity. “If I’m a middle-class worker earning at the median, and I am not going to see any more money if I improve my productivity, then why do I have to care about how good a job I do, or if my company prospers, or if the country prospers?” asked Noah.

In the question-and-answer session, audience members challenged Noah about other possible drivers of income inequality and asked what type of solutions he offers.

In response to a question over whether the change in taxation rate has been a major factor, Noah noted that the top marginal tax rate has been cut in half since Ronald Reagan became president. But our income tax today is slightly more progressive than it was in 1979, and so it hasn’t contributed to wealth disparity as much as we think. And although the government is about 25 percent less redistributive with Americans’ money today than it was in 1979, this isn’t what’s driving income inequality either. “The government is doing less to fix income inequality, but there’s a whole lot more of it than there used to be,” said Noah.

Another audience member asked whether technology is a big driver of this change. A company like Facebook has huge revenues but employs thousands of employees rather than tens or hundreds of thousands. This is part of it, said Noah. “In general we’ve seen there’s been a documented decline in how much of the GNP goes to wages as against how much goes to capital,” he said–but this can be attributed to the waning influence of the labor movement as well.

What about the decline of manufacturing? This has been a global phenomenon, Noah said, yet other countries aren’t experiencing the same level of disparity as America.

And how does Noah propose solving this problem? He admitted that his suggestions are not politically viable in the short-term, but he believes they have long-term potential and could do much to improve the lot of the middle class. Raising the minimum wage would help many working adults and would have a ripple effect–“it tends to raise wages across the board,” he said, and it also increases worker productivity. Improving the U.S. education system–starting with universal preschool–and capping the cost of higher education would also assist the middle class. And although both the left and right alike “don’t want to hear about reviving the labor movement,” Noah believes that there is no other alternative that will protect workers earning a median salary.

Watch full video here.
See more photos here.
Read expert opinions on whether American inequality is inherent to American exceptionalism here.
Read an excerpt from The Great Divergence here.

Buy the Book: Skylight Books, Powell’s, Amazon.

*Photos by Aaron Salcido.

The post Let’s Relearn To Share the Loot appeared first on Zócalo Public Square.

Lind divides the past 250 years of American economic and political history into three industrial revolutions, three American republics, and two great American traditions–Hamiltonian and Jeffersonian–of political economy.

The first industrial revolution was based on the steam engine; the second was based on the internal combustion engine and the electric motor; and the third was based on the development of computer and information technology. In each of these waves of innovation, an initial period of invention was followed by 30 or 50 years of deployment. Although automobiles were invented in the 1860s, for example, it wasn’t until the 1920s that they were widely deployed across America. Similarly, transistors were first developed from the 1940s to the 1960s, but it was only beginning in the 1980s that a large number of people utilized the technology.

America’s three republics–what Lind called “discontinuous regimes”–have been separated by crises: The Civil War and Reconstruction ended the first republic, while the Great Depression ended the second. “We’re in the last days of the third American republic,” said Lind.

Throughout all these republics, America has been torn between the Hamiltonian and Jeffersonian traditions of political economy–as originally envisioned by the first secretary of the U.S. Treasury, Alexander Hamilton, and the third U.S. president, Thomas Jefferson. The Hamiltonian tradition views government and businesses as collaborators in a common project of nation-building. The Jeffersonian tradition sees America as a democratic republic where a majority of the citizens are independent and own property; it was originally an agrarian vision but has expanded to encompass farmers, the self-employed, craftsmen, and small-business owners.

Alexander Hamilton wanted to protect American industry behind tariffs so that American manufacturers could compete with British manufacturers. Thomas Jefferson and his supporters tended to favor free trade but also wanted government regulations in favor of small producers over large ones. U.S. anti-trust laws, anti-chain store laws, and unit banking laws (which kept banks from opening multiple branches in different cities until the late 20th century) are all the results of Jeffersonian policies.

The nation has gone through alternating phases in which first one tradition and then the other held sway. Typically, Hamiltonians come to power after crises: there’s a consensus, said Lind, “that there are great projects needed to build the country after these crises.” The Transcontinental Railroad was completed after the Civil War, and the interstate highway system was pushed through Congress after the Great Depression.

After these bursts of Hamiltonian activity, “in the next generation, there is a neo-Jeffersonian backlash,” said Lind, with a libertarian and localist bent. In the 1830s, Andrew Jackson spearheaded this backlash in his famous battles with Henry Clay over national banking and government support of infrastructure and manufacturing.

“It’s not a simple partisan story,” said Lind. “Different traditions ascend and descend.”

For the past 40 years, Republicans and Democrats alike have embraced a neo-Jeffersonian tradition. Barack Obama and Bill Clinton are both Jeffersonians–as was Ronald Reagan–while Herbert Hoover was a right-wing Hamiltonian, and Franklin Roosevelt was a center/left-wing Hamiltonian. Lind believes we are again in crisis–a depression, not a recession–and he predicts that as the current third republic comes to an end, “there will be a period of a decade or two of upheaval, and then we’ll emerge with a very different America.”

In the question-and-answer session, the audience asked him to say more about what this new America might look like.

Are there any Hamiltonian leaders he sees taking the reins? Lind name-checked John Kerry and Senator Kay Bailey Hutchinson from Texas. But while “there’s no single figure in either party” who comes to mind, there are proposals and policies in the conversation that are Hamiltonian in nature, such as an infrastructure bank (supported by Hutchinson) that fits the bill.

In response to a question about whether it might be possible to turn California around, Lind spoke frankly. “We’re never going to recover,” he said. “The world before 2008 is dead. It is never coming back. The world is going to be different.” And our language needs to reflect that. He believes that we shouldn’t be talking about recovery, but about rebuilding and reconstruction instead.

Asked about the immediate future, Lind was similarly sobering. A lot of people, including himself, thought that Barack Obama’s election would be like 1932, the year Franklin Roosevelt became president. “What if 2008 was really 1929?” asked Lind. During the Hoover years, the stock market inched up every time there was good news–but in 1931 crises in Germany and Central Europe plunged the world even deeper into depression.

The final question challenged Lind on how he thinks we might be able to begin solving our economic woes. “If wages kept up with federal growth, budgets would be better today,” he said. The disparity between the richest and the rest of us is causing less consumption and more speculation, creating a more volatile economy.

“What’s the answer to this? Reform if possible, revolution if necessary,” he said.

Lind apologized for ending the evening on a pessimistic note, but he suggested that the 21st century might see a new kind of state much like what we see today in China and India: large countries with a small fraction of the population making up a middle class–while the rest of the nation doesn’t partake in the wealth. America has to make sure that “we don’t recapitulate that pattern and have a first-world America and a third-world America existing within the same borders,” said Lind. That said, he assured the audience: “You don’t need to buy guns and gold-yet.”

Watch full video here.
See more photos here.
Read expert opinions on where in the past the U.S. economy can find inspiration in emerging from the current economic downturn here.

Buy the Book: Skylight Books, Powell’s, Amazon.

*Photos by Aaron Salcido.

The post Hold Off On Buying Guns and Gold—For the Moment appeared first on Zócalo Public Square.