Nothing But Words

Check out the price tag – $408, 692 – that’s for one men’s room and one women’s room

Check out the price tag – $408, 692 – that’s for one men’s room and one women’s room22-Dec-2009 20:19SONY DSC-W55, 2.8, 6.3mm, 0.025 sec, ISO 200

The sign pictured here went up last month at 69th St Station. Check out the price tag: $408,692 to remodel the men’s room and the women’s room. My nice large house in a good neighborhood isn’t worth that kind of money. The station’s men’s room is a modest size – two toilets, two urinals, two sinks. Presumably the women’s room is similar, so we’re not talking about large facilities. And the sign says “refurbishing and renewal of existing public restrooms,” which doesn’t make it sound like major demolition or expansion is involved.

Usually when you see a sign like this for a public project, its for something like a bridge, and most of us don’t have the kind of experience needed to readily understand all the expenses involved. But most homeowners can relate to the cost of remodeling a bathroom. So I’ve been trying to imagine where all that money is going. Trying to be generous and fair, here’s my best guess at what the cost should be:

1. Let’s start with the price of remodeling a non-luxury residential bathroom. About.com puts the average remodel price at $16,000 to $17,500. Let’s round that up to $20,000.
2. Double that for 2 bathrooms: $40,000.
3. These are public restrooms that require heavy duty fixtures. In the old men’s room, the sinks, toilets, and urinals were stainless steel. The toilets were designed without seats (as the designers assumed – probably correctly – that some jerk would just tear them off) and the mirrors were reflective metal instead of glass. The sinks are probably designed to handle drunken idiots dancing on the counters. There’s also two of every fixture in each bathroom (two sinks, etc., but minus the showers and tubs in a typical residential bathroom). So given the need for heavy duty fixtures and two of each kind, let’s double the cost again: $80,000.
4. Now let’s add in the premium for union labor and the cost of compliance with regulations such as the ADA (Americans with Disabilities Act). That’s harder to guess at, but I think doubling the cost again is generous: $160,000.

So that doesn’t even get us halfway to the actual price being paid with public funds. What is the rest for?

UPDATE: The SEPTA Watch Blog has picked up this post, and has reached out to SEPTA for more information.

UPDATE 2: septawatch.com got an answer: it turns out the cost is for renovating 4 bathrooms, not just the 2 implied by the sign. So if you take my generous $160K ballpark estimate and double it again (for going from 2 to 4 bathrooms), that’s $320K. That’s still almost $100K shy of the actual $408K cost, but if you read the septawatch.com post, it sounds like they’re actually doing more than just “refurbishing.”

A former student of Maria’s took this picture in Shinjuku. It’s Taro Aso, the Prime Minister of the recently defeated LDP05-Sep-2009 13:58EASTMAN KODAK COMPAN KODAK EASYSHARE M320, 3.2, 7.1mm, 0.0080 sec, ISO 80

One of Maria’s former students, now in Tokyo, took this picture in Shinjuku. It depicts Taro Aso, who in the wake of the LDP’s defeat, is now the outgoing Prime Minister of Japan.

The cover art for the Economist’s Sept 5th issue: Dokkaan means “explosion”

The Economist’s articles about the election are good – see this week’s Leader article and their more detailed Briefing article. Maria’s the expert on Japanese politics, not me, but she pointed out to me an aspect of the story that’s been missing from the Western press. Koizumi won a big victory for the LDP in 2005, partly because of his promise to privatize the postal saving system (a particular area of interest for Maria). The Western press depicted the 2005 election as a call for “reform” from the Japanese people, but it also represented a political maneuver by Koizumi to undermine the old guard of his own party, which opposed him on many issues and relied upon the patronage politics of the postal savings system. So while the DPJ’s landslide victory last week was certainly a resounding call for change, it’s also partly the result of the intra-party fight Koizumi started in the LDP several years earlier, which had the effect of weakening the party overall.

The Katakana word on the Economist’s cover is “Dokkaan” which is an onomatopoeia word for “explosion.”

Something I haven’t found any news on yet is how the Happiness Realization Party fared in the election. It’s the political arm of the “Happy Science” cult. The closest analogy to the US would be if there was a political party based on Scientology. They’re known for their wealthy members, they require large sums of money or expensive gifts from their followers to reach successive stages of enlightenment, and their leader claims “…he is the incarnation of El Cantare, a 9th degree spirit who was originally sent to the Earth from Venus 600 million years ago.” They claim to have 10 million followers, and they managed to field candidates in all of Japan’s 300 single-seat electoral districts.

I’d like to point you to a couple of particularly good blogs for understanding the turmoil in Iran right now. Gary Sick, who served on the National Security Council for Presidents Ford, Carter, and Reagan, provides this context in his blog. His post, Iran’s Political Coup is particularly good. Middle East History Professor Juan Cole is often insufferable, but his blog is a great source of first hand accounts emailed to him from the streets of Tehran. His recent post Class v. Culture Wars in Iranian Elections explains why – when placed in the context of the past 10 years of Iranian politics – the official election results are completely implausible.

It’s also fascinating to see the online battle between the protesters and the Iranian government, with the government shutting down cell phone networks and blocking access to services like Twitter and Facebook. Their goal is to disrupt communication between the protesters, as well as stifle their communication with the outside world. In response, people inside and outside Iran are swarming to set up proxy servers to get around the blocks. CNET News has a good explanation of what’s happening in laymen’s terms.

The best and most comprehensive assessment I’ve seen yet of our current financial crisis is Simon Johnson’s article in the latest issue of The Atlantic, The Quiet Coup. Here’s the summary:

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

I’ve been very disappointed with the Obama administration’s handling of the crisis – they are letting the banks continue to run the show. As Johnson’s article makes clear, the financial sector wields preponderant influence in both political parties. Josh Marshall at Talking Points Memo explains the current politics of the situation well, as the extent of malfeasance in the financial sector becomes known, and public anger rises:

The problem is what appears to be the president’s mortifying impotence in the face of bankers and financiers who created the problem… I think the American people have demonstrated over the last six months that they’re willing to expend vast sums of money and endure great economic hardship without holding the damage against their political leaders. Effectiveness, in the sense of how long it takes to turn the economy around, is something they seem willing to be flexible on. But not on who’s in charge… From Geithner and Summers, and indirectly from Obama, we keep hearing financial-legal versions of ‘It’s bigger than the both of us’. Like we’re along for the ride, still taking dictates from the people who got us into the mess we’re in.

And Johnson, in the conclusion of his Quiet Coup article, is very clear about the economics of the situation:

At the root of the banks’ problems are the large losses they have undoubtedly taken on their securities and loan portfolios. But they don’t want to recognize the full extent of their losses, because that would likely expose them as insolvent. So they talk down the problem, and ask for handouts that aren’t enough to make them healthy (again, they can’t reveal the size of the handouts that would be necessary for that), but are enough to keep them upright a little longer. This behavior is corrosive: unhealthy banks either don’t lend (hoarding money to shore up reserves) or they make desperate gambles on high-risk loans and investments that could pay off big, but probably won’t pay off at all. In either case, the economy suffers further, and as it does, bank assets themselves continue to deteriorate—creating a highly destructive vicious cycle.

To break this cycle, the government must force the banks to acknowledge the scale of their problems. As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization. Instead, Treasury is trying to negotiate bailouts bank by bank, and behaving as if the banks hold all the cards—contorting the terms of each deal to minimize government ownership while forswearing government influence over bank strategy or operations. Under these conditions, cleaning up bank balance sheets is impossible.

Nationalization would not imply permanent state ownership. The IMF’s advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC “intervention” is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse.

To give credit where it’s due, Robert Reich (Clinton’s Labor Secretary) had it figured out back in January:

Back in the banking crisis of 1907, J.P. Morgan got all the major bankers into one room and forced a kind of reorganization on all of them. We need the same today — a giant reorganization of the banks, in which their shareholders lose what little value they have left, their creditors get paid 20 cents or so on the dollar, and their assets are written down to about 20 percent of their face value. In effect, it’s an industry-wide reorganization under bankruptcy. This way, bank balance sheets are cleared up, there’s no run on any one bank, everyone starts anew, and taxpayers aren’t left holding the bag.

Reich also emphasizes the urgency of the situation:

Six months ago it may have made sense for the government to buy up so-called “toxic assets,” based on home mortgages that should never have been issued. Three months ago it may have made sense to establish a “bad bank” to store them in, until they could be resold.

But as the Mini Depression worsens, “toxic assets” are no longer all that distinct from a vast and growing sea of non-performing or endangered loans on the banks’ balance sheets. Toxicity has spread to loans made to people and companies that were good credit risks as recently as early last year but are now bad risks. You don’t have to be an honest financier (no oxymoron intended) to figure this out: Ten percent of Americans are behind on paying their mortgages. Millions more are behind on paying their credit-card bills. Hundreds of thousands of small businesses are behind on paying their own bills. Auto suppliers can’t pay their bills. And so it goes.

A “bad bank” collecting all these non-performing or in-danger-of-becoming non performing loans might well become larger than the rest of the banking system — nationalization through the back door of lemon socialism, where the government (and taxpayers) own and control this vast sea of junky loans.

The current Treasury plan doesn’t force any transparency on the banks – it doesn’t require any honest accounting of the value of their assets. Instead it’s essentially an offer by the government to underwrite all the risk for anyone who will invest in banks, leaving the government (taxpayers) to absorb the losses if the investments fail. It’s a plan that again leaves the banks holding all the cards, serving no one’s interests but their own. If, for example, a bank owns a mortgage with a face value of $300K, and the home is foreclosed, the bank still has a $300K asset on its books. The home currently may be worth only $200K, but what incentive does the bank have to sell it at that price? Sales like this would bring in cash, but would dramatically reduce the value of what’s on the bank’s balance sheets. Enough such sales would likely push them into insolvency. The bank’s incentive is to instead find a way to persuade the government and investors to pay far more than what the assets are worth, or to just not sell them at all, and hold out for another bailout. (Credit for the observations in this paragraph goes to Maria, who understands the financial sector at a much deeper level than I do).

In the end, I’m forced to agree with this cynical observation from the comment section on a post about the possibility of banks gaming the plan (i.e. through proxies, bidding up the sale price of their own assets and leaving taxpayers on the hook for the difference):

As far as I can tell, the endless succession of plans offered up over the last six months has had one goal: come up with something complicated enough to provide political cover for foisting the huge losses of the banks off on taxpayers. Even assuming no cheating/gaming, best-case scenario – isn’t that the whole point of the plan?

Another voice worth hearing on the economic crisis is Paul Krugman at the New York Times (scroll down to the “columns” section). And to avoid ending on too depressing a note, give a listen to the song Hey Paul Krugman:

Senator Grassley, on the AIG executives and their bonuses:

“I suggest, you know, obviously, maybe they ought to be removed,” Grassley said. “But I would suggest the first thing that would make me feel a little bit better toward them if they’d follow the Japanese example and come before the American people and take that deep bow and say, I’m sorry, and then either do one of two things: resign or go commit suicide.

“And in the case of the Japanese, they usually commit suicide before they make any apology.”

It’s a shame Senator Grassley hasn’t ever shown any interest in having us replicate other aspects of Japanese society, like their amazing and wonderful mass transit system. With their ubiquitous and reliable railways, jumping in front of a train is definitely a dependable way to go in Japan. If we had had a rail system like that, then the AIG executives would have their pick of modern, high speed trains to throw themselves in front of.

Today, on Obama’s inauguration day, I’d like to offer my thanks to a former Senator from Nebraska, George Norris, for bringing us the 20th Amendment to the Constitution:

The 1933 “Norris Lame Duck” Amendment, as it was popularly known at the time of its ratification, eliminates the December to March Congressional “lame duck” short sessions… The amendment also moves the inauguration date for president and vice president from March to January… The amendment’s author, Senator George Norris, concerned with congressional efficiency and accountability, regarded it as one of his greatest achievements.

Having the inauguration in March hampered previous incoming Presidents during times of crisis, most notably Lincoln during the Civil War and Roosevelt during the Great Depression. Woodrow Wilson was so concerned about the effect of an extended lame duck period on the war effort if he lost his re-election bid in 1916, that he planned to resign immediately if he lost:

The final result was exceptionally close and the result was in doubt for several days. Because of Wilson’s fear of becoming a lame duck president during the uncertainties of the war in Europe, he created a hypothetical plan where if Hughes were elected he would name Hughes United States Secretary of State and then resign along with the vice-president to enable Hughes to become the president.

Obama’s been President for about 10 hours now, and I’m still waiting for world peace, electric cars, a revived economy, universal health care, and, of course, my jet pack. No President in my lifetime has come into office with such high expectations (due to both the multiple challenges we face, and the type of campaign Obama ran). But one thing is for sure, the Bush administration has been in “not my problem” mode since before the election, and I’m very glad to see Obama in office now instead of March. So, thank you, Senator Norris, and good luck, President Obama – you’re going to need it.