MeddyBemps

Believe it or not there is a town with that name deep in the lakes of Maine, off of what has been known as the Airline road since before airplanes became ubiquitous, which, despite its remoteness, is thriving in its own backwoods way. The biggest mystery about this wonderfully named town is not how and why it thrives BUT how it got and kept such an unusual name.

To understand, one first has to understand Maine dialect. When most down-east Maniacs say the words, “many bumps” it does sound quite like “meddy bemps.” Or perhaps local American Indians used words/sounds like this to describe the place. In any event maps of the northeastern counties of the State of Maine in the mid-19th century largely showed nothing but empty space with few exceptions. One was MeddyBemps on MeddyBemps Lake.

The shortest (but often longest) route between Bangor and Calais was, until recent years, one seriously rough unpaved road with many, many bumps. With typical Maine directness, commonsense and wry humor MeddyBemps became, and remains, an appropriate name, despite the fact that the road to get there for a long time was mainly paved with good intentions and still has lots of bumps. Very few people can remember or explain how the town came to have that unforgettable name but it has stuck proudly and tight.

So what does that little footnote to history have to do with life in the U.S. and the world today? Of course the answer is that we are still living through periods of many bumps of various types and will continue to for a long time to come. AND, it might be a good idea for all of us to adopt Maine’s temperament of directness, common sense and wry humor.

Today’s bumps are not just speed bumps — though such warnings would be a good idea — but they are serious, wrenching shifts in the tectonic plates of modern society brought on by great surges in growth and wealth and population. The inevitable road to make the adjustments that necessarily follow such surges will be long and bumpy.

We are coming off a period when housing prices were rising so fast and consistently that more people were buying and building to speculate than to habitate. They were using the easiest money in man’s memory, often with no equity, nothing down and scant evidence of capacity to pay, because they figured next year’s increase in home values would take them out at a nice profit. Evidently they had never played musical chairs as kids.

We are coming off a period when 17 million new cars a year were being sold in the U.S. Loans with no down payment and “easy” monthly obligations were tempting more and more people to trade up and often. Now 12 million cars a year is big news.

We are coming off a period when we were enjoying practically full employment. Pay was rising and dependable. Now we have 9+ percent unemployment and the needle is stuck.

We are coming off a period when the economic growth of the 1990s, following the dot com boom, brought increased tax revenues, and by 2000 we had balanced current budgets and our overall national debt was headed down. Now we are back to the biggest current and accumulated deficits ever.

We are coming off a period when our sense of national security dictated the need to engage in what have turned into two of the longest and costliest wars in all our history. Now we are stuck with gigantic defense budgets as far as the eye can see.

We are coming off a period when advances in modern medicine and way of life have extended life expectancy by as much as 20 years compared to the previous generation. But still 30 million Americans have no health insurance.

We are coming off a period when the cost of health care in the U.S. is growing like a cancer and will grow much faster than any possible economic growth essential to pay for it unless we take serious real steps to rein it in.

We are coming off a period when the discretionary portion of our national budget is under 20 percent. The non-discretionary balance of 80 percent is defense, entitlements (social security and health) and interest costs on our national debt, all of which defies any political knowhow or will to address. There is no real room to maneuver unless we tackle the non-discretionary balance of the budget as well.

We are coming off a period when almost all citizens have come to expect that they will have jobs and security from cradle to grave. Where has our residual sense of self reliance gone?

I’ll bet you would prefer not to hear a lot more about what we are “coming off.” Well, there are more than have been listed and they all are serious bumps in our road ahead.

The President is right that the only way to deal with all those bumps is to take them in stride in good humor and in a collective way agree somehow that the pain has to be shared rationally and fairly by all segments in our society.

It really should not be a surprise that the recent “compromise” makes almost no one happy. If it did clearly those people would have been just plain lucky and their luck is surely unlikely to hold.

MeddyBemps is still there and its citizens are still folks who see the world like it is — replete with bumps. They have learned over time that though they may be in the middle of nowhere, they still are part of a larger world. That world whose many bumps and problems, over which they have little or no control, can make their lives worse, no matter how hard they try by themselves to pave a smoother road. WE ALL owe it to all the MeddyBempers in the U.S. to try hard to get it right and not just score political points in DC debates. Better to risk an election than risk the future of our children.

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A Prudent Method to Rebuild America

As the nation begins to emerge from what has been called a disastrous period of reckless endangerment, we are entering a new period in which reckless disengagement, as it relates to the crumbling infrastructure of our bridges, roads, and tunnels, may emerge as an even greater threat. At the same time, the burden of too much debt and staggering deficits raises the specter of a Grecian-style collapse with unthinkable consequences for government and its citizens alike. Together, these twin challenges portend a fate far worse than the seemingly endless malaise of the most recent bursting of an artificially maintained bubble. But that presents an almost impossible conundrum: too few resources and too much need. There may, however, be seeds of hope that can be mined from the causes of the mess we now confront.

One of the principal causes of the economic disaster of the last few years was an excessive use of cheap money to fuel a vast over-expansion of housing for millions of Americans. Under cover of the worthy social goal of extending home ownership to all Americans, that money was generated and deployed by an ingenious, but as it turns out, blind, greedy and occasionally corrupt financial system built on a longstanding and dependable public-private invention called Fannie Mae.

Fannie Mae was created by Congress some 70 years ago originally as a government agency and then in 1970 converted into a “Government Sponsored Entity” (GSE), to enable more Americans to buy their own homes. Like many inventions of government, it began as a sleepy intermediary designed to both lower the cost of borrowing and increase availability by clothing Fannie Mae with the strongest credit standing in the world, namely that of the US government. Guess what? It worked — incredibly well, in fact — until it developed a liquidity problem from which it recovered brilliantly and then fell into financially inexperienced hands of political managers in the early 1990’s, who manipulated its mission beyond anything its founders and designers had ever intended.

Fannie Mae and its offspring, including the copy cats that emerged in its wake, lowered lending standards to the point of reckless endangerment — homes could be had with virtually no money down, no documented ability of the buyers to pay, and with interest-only mortgages that disguised, and ultimately ignored, the true cost of ownership. Coupled with greed-driven goals to deliver more and more such obvious risks into the secondary mortgage market, this “foolish money” policy brought the bubble of the first decade of the new millennium to its horrifying conclusion.

But Fannie Mae didn’t start out as a disaster waiting to happen, and the things that made it great for decades offer something of a roadmap to navigating current challenges. Vast sums of private sector money were generated toward an acknowledged public good by the implicit imprimatur of the United States, and the perception of lower risk served to lower costs. Money flowed as intended into housing without utilizing the government balance sheet at all. (That is, until the system was badly abused and the bubble inevitably burst.) But, if proper and adequate safeguards had been maintained, the problems that collapsed the “house” (literally) of cards could/would never have happened and the U.S. Treasury should/would never have had to bail out Fannie Mae and its offspring, and various ancillary victims deemed “too big to fail.”

Let’s be clear: there can be no illusions that the history of Fannie Mae might be enough to keep political cats from getting onto a hot stove ever again. Nevertheless we should have learned from recent experience to be grownups enough to be able to manage better than cats how to deal with hot stoves. After all, as today’s challenges illuminate, we do still have to keep cooking!

Today, we face an unmet need as large — and perhaps much more dangerous — as that of the housing market in the mid-20th century: the collapsing infrastructure of our nation’s physical capital. It will require trillions of dollars over time to restore this infrastructure to a reasonable condition. Simultaneously, we are, as a nation, are struggling with solvency. There is simply no way government can, on its own, produce the money to fund those infrastructure needs. And we desperately need to create jobs to get millions of people back to work — but again, without actually spending government money.

We also have the excellent precedent in the collaboration between the public and private sectors that Fannie Mae once epitomized. Utilizing the best of that precedent, and protecting against the worst, is where the seeds of a solution lie to address today’s horrible conundrum.
The idea is really is quite simple in concept, though implementation will be in practice — both politically and operationally — neither simple nor easy.

To begin, Congress will need to create a new GSE entity modeled after the now infamous Fannie Mae. An InfraStructure Funding Corporation (ISFC) would have the power to borrow in private financial markets with a Federal mandate that would enable it to purchase obligations of and backed by various public and private “owners” of the tens of thousands of infrastructure projects that need to be built and rebuilt across the whole country. In theory, those “owners” could continue to go case by case directly to financial markets as they do today but as a practical matter that would be highly inefficient as well as extremely difficult and unlikely to succeed.

All those “owners” would have to be judged to be qualified to (1) properly manage and utilize the borrowed funds and (2) generate enough money from fees and tolls to pay all the interest and amortization repayment costs of the funds borrowed from the ISFC.

Many of those “owners” today are public entities that have no specific responsibility or even authority for infrastructure restoration and maintenance. Those entities, to become qualified borrowers from the ISFC, would have to face up to their need to generate income locally in some fashion.

That will require some adaptation by many communities to the reality that if they want a modern infrastructure they will have to pay for it one way or another. That fact will bring to bear an appropriate use of market forces which should cause communities to be carefully selective and not blindly go overboard. Technologies exist that make it possible relatively easily and inexpensively to cause users to pay for what they use. For example in central London today drivers either pay for a permit to allow them in or their license number is read by cameras and they are automatically charged if they enter prohibited areas. Communities will have to figure out how much they need to add to local taxes and/or how much to charge on a use type basis.

That may very well lead them to create various kinds of collaborative governance structures between public and private entities to create and maintain a balance between competing forces: on the one hand, a desire for continued free public services and, on the other, the reality that there is no such thing as “free parking” when your car is on a bridge that is beginning to crumble.

If all the moving parts in such a system are maintained in a proper way (granted, a very big IF, but isn’t that always the case?), billions, even trillions of dollars could be deployed over several decades to rebuild America, generating hundreds of thousands of jobs, and utilizing virtually no government funding. At the same time, we can reasonably hope that the balance of our national fiscal structure will work its way back to normality and millions of new jobs will have been created to fix and maintain the physical capital of America.

Happy days can again lie in our future after all!