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Building Deep Links Into E-Commerce Product Pages Posted: 13 Dec 2010 04:15 PM PST Posted by Everett Sizemore There are tons of ways to build links into the home page or blog/article pages of an e-commerce website. But most e-commerce SEOs suffer from the same problem: It's not so easy getting links into categories or product detail pages (PDPs). The e-commerce SEO's conundrum: The pages that generate revenue are the ones you hope to rank highly, yet they're the ones to which nobody wants to link. Of course, you've already done all of the interlinking from your most linked-to pages into your product and category pages right? So now it's time to take the next step and get external links directly into products and categories. The first thing I want to mention strategy-wise is that you don't always need to go after the keyword anchor text for which you want to rank. While that text should play a significant role in your link profile, I often purposefully build a few "click here", "domain.com" and other types of non-keyword targeted deep links. We get those types of links quite readily into our home pages, but since most of our deep links aren't coming to us organically, they tend to lean too heavily toward keyword-text. Make your link profile look natural, even if it isn't. The second thing I'd like to mention is that you should also build links into category pages. These are the pages that pass page rank into your products internally. If your category pages have high page rank and lots of quality external links, it will be much easier for you to rank for a newly launched product even before you've had time to build links directly into the new PDP. Putting static content on these category pages, and paying attention to best practices when it comes to pagination also helps. The List of Ways to Build Deep Links Into E-Commerce Pages Product Reviews This is one of the easiest ways to get a link into a PDP, and often includes the product name as the anchor text. In the end, it would probably cost you less than outright buying a link, and is not only safer, but does a better job of expanding your brand recognition, reaching new customers and getting feedback about your products. Not all reviews are going to be glowing recommendations, but I have found that (assuming you have a good product) anyone who gets a free thingamabob from you is going to at least give you a fair analysis - more often than not, it's a darn good review. Don't "ask" them to link to your PDP with any specific keyword text. Nine times out of ten, they're going to link to you anyway. Every once in awhile they'll use an affiliate link. If that happens, just make a note not to send them anymore product to review (if an organic link was your goal) and move on. If they don't link at all, it might be worth a quick follow up to give them the PDP URL "in case you'd like to provide it as a convenience to your readers" or something like that. Assuming you sell BBQ grills, here's an example of how to find those opportunities: BBQ grill inurl:review Sponsorships Is paying to sponsor an event the same thing as buying a link? My personal opinion on that matter is that it depends on what you're sponsoring. For instance, it is not unreasonable for you to sponsor a marathon and have your logo on the marathon's sponsor page linking back to your running shoes category. As an example of how to find such an opportunity: Marathon inurl:sponsors Or you could go local and search for Denver Marathon inurl:sponsors which would be doubly-relevant if you owned a Denver shoe store. People will no doubt comment that having "sponsor" or "review" in the URL (or title:) is a "footprint" and will advise against building links this way. They have a good point, but so far I have not seen this to be a problem. There are many legitimate sites out there linking to other legitimate sites organically from pages called links.html, sponsors.php or product-X-review/. In the end, it is up to you as to what you see as a risk, and whether you are willing to take that risk. Obviously, you don't want to take any link building strategy too far, or make your link profile rely too heavily on it. Here's a post I did awhile back with even more queies used to find such opportunities. Guest Posts Writing high-quality content for other websites is one way to get deep links back into your own. When first building a content distribution relationship with another website, avoid dropping the links directly into the body unless they have already said this is acceptable. Even then, one or two links is the max. I usually start by just putting one deep link into the footer. The article will be on a topic that matches what I'm linking to (e.g. "Preview of the Hottest Sneakers for 2011" linking in the bio to the sneakers category). As you develop ongoing relationships with other sites, they may be more amenable to having one or two links put into the content (if appropriate and not forced) instead of the bio. Personally, I'd rather it be this way on my sites because giving the author a bio makes it apparent that it's a guest post and sometimes I'd rather it just seem like I wrote the content. I use MyBlogGuest regularly, and recommend getting the pro account so you can upload your content to the articles directory. This makes the job of getting it placed on other sites much easier to manage. The quality of sites varies, but you have the choice to decline an offer to post your content if you don't think the site is worthy. Type-A Parent lets you post on their site and connect with parents. Think of the possibilities if you sell anything to do with kids and/or parents. One last tip on the guest post thing: I know it's tempting to keep all of your best content for your own blog. And in many ways that makes sense. But if you're going to get into guest posting, don't try and get away with writing ehow-level content. This is only going to get you placed on inferior blogs. Many PR 5+ blogs out there accept guest posts, but none of them accept the kind of junk you can pay someone on Mechanical Turk to write for $5. I will easily spend three or four hours researching and writing a guest post if I have a specific host blog in mind. In the end, it's still cheaper than buying an equal-caliber link with cash. In fact, most of these tactics are cheaper and more effective than buying links. They just take some elbow grease and thought. Putting Linkbait on PDPs While this won't work with every kind of linkbait, there are certainly opportunities to use a PDP as the landing page for a piece of linkbait without taking too much away from the actual selling of a product. I'll give a few examples to illustrate: A really cool product demo. We're not talking run-of-the-mill product demonstration here. One of the best all-time examples of this is the WIll It Blend series by Blendtec. While they created a separate site for that series, showing the videos on the blender PDPs would have been a great way to get deep links into those product pages. I would have just given them one. ;-) A free download. Who says your downloadable eBook, game, app, etc… has to be on it's own landing page? If one of your best-selling products is a wooden toy truck, hand-made in the USA - why not offer a downloadable eBook on that page that discusses how to test for lead paint on toys, or the dangers of BPAs in toys, etc… ? An Infographic. You obviously wouldn't want this to be full-size. And if you just give a link to the full-size version, the links you'll get back are going to go to the full-sized URL. Instead, use a small preview size and then show the full size in a Jquery modal window or some other visual effect that keeps the user on the product page. Give More Details Than Your Competitors Anyone can describe the product in a few paragraphs, but sometimes there's more to it than what can fit into a typical product detail box. Using tabs in your product description area allows you to fit a lot more content into the same amount of page real estate. This opens up the door for you to make a PDP into a real informational resource. It all depends on the type of product, but here's one example: You sell solar panels. Provide an "Installation" tab on the PDP that goes over how to install your own solar panels. It would include all of the hardware you need (of course, with links to the places on your website where that hardware can be purchased) as well as step-by-step instructions and maybe a video showing how to install the product. Give-Aways & Contests The idea of co-sponsoring a give-away on another website is very similar to the review and sponsorship opportunities, but can be expanded upon to get more bang for the buck. Back when I was working for a company that sold eco-friendly household products we were having trouble getting direct links into a product page for a rug made from recycled plastic soda bottles. Instead of just giving the rug away on our site, we gave one away on a popular green-living blog. And instead of "just" giving it away to anyone who commented, we required them to visit our website and come back posting something they learned about this product, or about the company in general. In this way we introduced all of those people to our brand and actually got them to spend time exploring our website and products. Most of them came back with very positive things to say about our brand, products in general, or this one product in particular. One of them came back with a question about the product, which helped us improve our product description and keyword use on the page. The blog owner gave us a great keyword-rich link, and lots of other people posted about the give-away on their blogs, always linking to the green living blog's post, often linking to our PDP as well. Then there were social media mentions and some direct sales too. All of this costs less than the price of a crappy link on a PR-2 blog that may get discounted a month later. Ask Your Brand Evangelists for a Link This one sounds simple, but it's surprising how few merchants actually do it. The idea of cultivating evangelists or ambassadors isn't new. In-fact, it's how pro athletes make a good deal of their money. But you don't need to hire a professional ball player for millions a year; Get the people who already love your brand to share that love, especially when it comes to their favorite products on your site. A good example of this is the Lululemon Ambassador Program. Also see Rand's Headsmacking Tip on Linkbuilding via Confirmation Emails Make Your Holiday Landing Pages Evergreen I can't count how many times I've seen a URL like this www.ecommercesite.com/category/top-gifts-2008 . These are inside pages that often get a lot of links. So why start from scratch again every year? Put the year in the title and the content, where it can easily be changed, but keep it out of the URL. This way you can use the same page again and again without dealing with redirects. Speaking of this type of landing page, if you don't have them for Christmas, Fathers Day, Mothers Day, Valentines Day, etc… then you should (if appropriate). Crowdsourcing Create a social media crowdsourcing campaign around a product. Let's say, for instance, that you're going to change the design on a T-shirt. Why not let the community submit their designs and vote on their favorite one? Be sure to mention the URL to the current design (i.e. the PDP) to give everyone a starting place and product URL to which they can link. This is part of Threadless's "submit a design" page. If the community is scoring my design for a t-shirt, I surely will be linking to the page from my blog, Twitter, Facebook, etc! Keep The Links You Have There's an old saying about how much easier and cheaper it is to keep a customer than to replace them. The same is true of links. Be sure to 301 redirect the URL any time you remove a product from your online catalog (especially if it has external links). You may think this one is a no-brainer, but it happens all the time because the merchandising team responsible for choosing which products to show isn't always in communication (sometimes not even in the same building) as the SEO team. Likewise, it may be easier to do link reclamation than link building when it comes to product pages. See Tom Critchlow's post on link reclamation queries. Local Links If you have brick-n-mortar locations, like a kiosk or store in the mall, build a locations page. It isn't quite the same as getting a link into your categories or PDPs, but it is a deeper link than your home page, and is an easy win in most cases. For instance, every mall, local chamber of commerce, local directory… is a potential source of links into this page. On-Site Hosted Affiliate Pages The health supplement and real estate industries have been doing this for as long as I can remember, although most of them do it the wrong way. The idea is you let affiliate (mostly brand evangelists) have their own co-branded page on your website. It will be an easy URL that they can put in their business cards (maybe you even send them a pack of 100 free business cards with the URL pre-printed after they sell their first $100 of merchandise) and link to from their social media profiles. You could offer this benefit only to a select few evangelists, or you could open it up to anyone. You could let the pages be public (if they each have enough unique content) or you may choose to add a robots index,nofollow tag in the header. I suggest the latter since you'll be paying the affiliate commissions on those sales. A note of caution: Pay attention to how these people are building links and promoting their page. If they get the bright idea to start leaving a bunch of spammy blog comments you could end up with a problem on your hands. That is one reason you may consider opening it up to a select few (especially celebrities or personalities in the industry) people instead of everyone. And you would need a clear TOS that they must agree to, which forbids them from marketing their page in certain ways. Here is an example from BeachBody. Make Your PDPs Shareable Here's another no-brainer that most sites are already implementing these days, but may be going about it the wrong way. First, let customers review your products, and show those reviews on the PDP. When a customer's review has been posted on the site, send them an automated email with a link to their review (using a # tag on the end of the URL that jumps to their review) so they can share it. You may go so far as to put sharing buttons in the email as well so they can quickly post to FB or Twitter. Second, make sure the product itself is sharable. But understand that you're not going to get anywhere sharing a product on Digg or Reddit (there are some exceptions to this rule, but very few indeed) so try to stick with sites like Twitter, Facebook and social shopping portals like Kaboodle if you're going to put social media links on a product page. They may not be followable links, but they'll help get the word out. Do a PDP-focused Link Analysis on Your Competitors Most of us are analyzing our competitors' backlinks, but it may be necessary to filter the data a little more to show only backlinks going into your competitors' category and/or product detail pages. There tends to be so much noise from links going into their home page and blog that these deep links don't even show up on our radar. For instance, one of their PDPs might only have one external link going into it, but that one link is a high-quality, deep link with good anchor text. When you're looking at a report showing thousands of links, it is quite easy to miss links like these unless you filter out the noise. You can do this by reasearching backlinks using OSE and just looking at results from other domains linking in with the word "product" or whatever it is that appears in the URL of the competitor's PDPs. Advertise Product-Level and Category-Level Discounts Having a "Discounts" page or an "Outlet" category is a great way to build links and increase sales on overstocked items. However, most of the links will go to this page, not the product page. And most of the discounted products tend to be either poor sellers (thus overstocked) or soon-to-be discontinued items. It is a good idea to put up some deep discounts on your more popular products from time to time. Instead of "Free shipping on all orders over $75" try "Free Shipping on All Blue Widgets" or "$10 Off Acme Blue Widget". Put up an offer display on these PDPs or categories and always link to that page when advertising the offer, such as in Facebok ads, PPC, display ads, email, social media posts, blog posts, or on your home page. As long as you're not creating special "sales" landing pages and are using your main PDP for that product, most of the links will stay active even after the sale is over. Obligatory Grey Hat Tactic - Bait N Switch As long as the campaign landing page was on-topic, it is not unreasonable to 301 redirect that page to a category or PDP several moths after the campaign is over. Let's say for instance you run the campaign above where you crowdsource T-shirt designs. The campaign runs from April-July and you announced the winner on that page in August with a link to the new PDP for that shirt to show off the new design, and prove that you actually did put it into your catalog. You'll probably get few more links through August, but by October everyone has forgotten about the campaign and the page isn't getting anymore links, and very little traffic. Now would be a good time to redirect that page to the T-shirt design's PDP. You could go darker shades of gray with this tactic. For instance, you could 301 redirect a social media hit (e.g. and infographic about famous ball player's shoes that went popular on Stumbleupon and Digg) to your basketball shoe category several months after the hubbub dies down. Widget Links This one is iffy, but it is my opinion that it's still a good idea if done right. For instance, don't buy a link for "Cheap Hotels" on a widget showing movie times. In fact, don't "buy" links on widgets period. And don't make a widget that is totally off-topic and link back to one of your product pages with highly specific anchor text. Hypothetically speaking, if I were going to make a widget for linkbuilding into an eCommerce site, I would want the widget to be distributed from my site and relevant to my site. For instance, the widget could be as simple as converting shoe sizes between the US and UK, and the bottom of the widget could have a followable link that says "Data provided by MyStore.com" with a link to your shoe category. Sourcing Unique Products Even though these may not turn out to be best-sellers, they'll usually hold their own and generate a lot of deep links into their respective PDPs. One of the most linked-to product pages on a site I used to work on was for a sink made to replace your toilet lid so that you get to use the clean water from the pipes to wash your hands before you flushed. If it's a product that makes you laugh or blush; that you can't believe people actually buy (but they do); or that is otherwise unique - it will generate links. An alternative tactic is to have one or two products that are just outrageously expensive. Who knows, you might actually sell a couple! Good Ol' PR Footwork I have yet to find a replacement for good old fashioned PR - the kind that requires you or a PR company to contact magazines, news stations, morning shoes, and major online publications to pitch a story. EVERYONE has a story to pitch. Maybe it's something easy like "Top Ten Fitness Crazes You'll See in 2001" with some blurbs/quotes from your CEO thrown in to make it easy for a journalist to use them. The trick here is not to try and pitch a story about "you" or your products (unless you truly have something unique at the time, like Groupon did earlier this year) but to pitch a larger story idea about your industry, and offer yourself, or your CEO, PR person, public face… up as an "expert" who they can quote. This usually only gets links into your home page, but if you work the story angle right you can get deep links. For the above case, maybe you have an infographic timeline of fitness crazes from the 70s up through today. Want to get started on this type of thing but don't know how? A good first place to look would be Help a Reporter. OK, I think I've about exhausted my ideas for the day. Maybe there are a few more floating around in there, but the coffee wore off a long time ago so I'm leaving the rest up to YOU! What did I leave out? What other angles can be taken on these ideas? What are some potential dangers that I failed to mention? Everyone has a few tricks up their sleeve so spill the beans! Technorati Tags seo, link building, ecommerce Do you like this post? Yes No

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Michael Gray - Graywolf's SEO Blog

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The Power of Internal Links Posted: 14 Dec 2010 07:24 AM PST I often talk about the power of internal links and how they can be very effective at helping you use your link equity wisely and rank for competitive terms. Before we proceed any further, I think it’s important to clarify what type of internal links I’m talking about. When I mention internal links I mean links that are in the main content section of the page not the sidebar. IMHO Google weights different parts of the page differently, and links in the content have much more value than those in the sidebar or other parts of the template (see How to Silo Your Website: The Content and How To Silo Your Website:The Sidebar). Now that I know we are talking about the same thing, let’s dig in for a closer look. In a recent sensational article from Techcrunch In The Era Of The Connected Camera, The Point & Shoot Commits Seppuku, you’ll see the crunchbox located at the end of the article: Screen Shot of Crunchbox from Techcrunch For two of the three company names the Crunchbase profile ranks in the top ten results [iphone 4] and [eye-fi]. These are not obscure, 5 word long tail phrases; they are both competitive commercial terms. If I were running Techcrunch … a moment while I compose myself … I would write a WordPress plugin that gave everyone else the ability to easily insert these crunchbase boxes at the end of their posts on their blogs. If you were really hardcore, you could do it widget style with updated info, stock prices, news etc. Need another example? Look at keywords for political figures like [Rush Limbaugh], [Sarah Palin], or [Glenn Beck] and notice how the NYDailyNews.com is ranking for those terms. Now look at pages like this and look at all the internal anchor text they are using. It’s all about using that internal anchor text wisely. So what are the takeaways from this post: Identify your high level KWD’s or concepts, and create topic or tag landing pages for them Set up internal anchor text links to those pages Try to automate the linking with plugins like crosslinker or kb linker Look for ways to extend your links offsite with code snippets or plugins photo credit: Son of Groucho Related posts: What is an Internal Link Hub I use the term internal link hub and link nexus... WordPress SEO: How to Maximize Your Internal Link Strategy While there are hundreds of thousands of posts on maximizing... WordPress SEO: How to Use RSS and Scrapers to Build Links When you run wordpress or any other blog for that... Social Media – The Power of the Title Rand made an interesting observation about a post that got... SEO Power Suite 7 Day Enterprise Trial SEO Power Suite is a series of tools I have... Advertisers: Text Link Ads - New customers can get $100 in free text links. BOTW.org - Get a premier listing in the internet's oldest directory. Ezilon.com Regional Directory - Check to see if your website is listed! Glass Whiteboards - For a professional durable white board with no ghosting, streaking or marker stains, see my Glass Whiteboard Review Need an SEO Audit for your website, look at my SEO Consulting Services Link Building- Backlink Build offers 45 PR5+ Backlinks for $295 KnowEm - Protect your brand, product or company name with a continually growing list of social media sites. Scribe SEO Review find out how to better optimize your wordpress posts. TigerTech - Great Web Hosting service at a great price. This post originally came from Michael Gray who is an SEO Consultant. Be sure not to miss the Thesis Wordpress Theme review. The Power of Internal Links

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Tuesday Talks: The White House Fellows Program

Your Daily Snapshot for Tuesday, Dec. 14,  2010   Tuesday Talks: The White House Fellows Program The White House Fellows Program is one of America's most prestigious fellowships for leadership and public service. Today at 1 p.m. EST, we're answering your questions about the program designed to provide exceptional men and women with a first-hand experience working at the highest levels of the Federal Government. Join the discussion and watch live. Photo of the Day First Lady Michelle Obama greets guests during a Child Nutrition Reauthorization Bill reception in the Diplomatic Reception Room of the White House, Dec. 13, 2010. (Official White House Photo by Samantha Appleton) In Case You Missed It Here are some of the top stories from the White House blog. The President & First Lady on Child Nutrition Bill: "The Basic Nutrition They Need to Learn and Grow and to Pursue Their Dreams" As one of her chief responsibilities and greatest passions, the First lady has dedicated herself to helping our children grow up healthy and reversing the alarming childhood obesity trend -- so the President's signing of the the Healthy, Hunger-Free Kids Act at a local DC school was particularly meaningful for her. Today’s Health Care Court Ruling Learn more about a legal decision regarding the Affordable Care Act. The DREAM Act and American Commerce Read the third in a series of posts from top Administration Officials on the importance of the DREAM Act, this one from Commerce Secretary Gary Locke. Today's Schedule All times are Eastern Standard Time (EST). 9:45 AM: The President and the Vice President receive the Presidential Daily Briefing 11:00 AM: The President meets with his national security team on Afghanistan and Pakistan 12:40 PM: The President and the Vice President meet for lunch 1:00 PM: Tuesday Talks: The White House Fellows Program 2:00 PM: Briefing by Press Secretary Robert Gibbs   Indicates events that will be live streamed on WhiteHouse.gov/live. Get Updates Sign Up for the Daily Snapshot  Stay Connected     Facebook Twitter YouTube Flickr iTunes           This email was sent to e0nstar1.blog@gmail.com Manage Subscriptions for e0nstar1.blog@gmail.com Sign Up for Updates from the White House Unsubscribe e0nstar1.blog@gmail.com | Privacy Policy Please do not reply to this email. Contact the White House The White House • 1600 Pennsylvania Ave NW • Washington, DC 20500 • 202-456-1111

Seth's Blog : High margins, Groupon and the magic basket for price differentiators

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Some things sell for not much more than they cost to make. Things like steel.

Others? They sell for high multiples of cost. Spa services, fancy ties, long haul airplane tickets, coaching, books--these are things that might cost a bunch to set up, but once the factory is rolling, the marginal cost of one more unit is really low. The challenge, then, is to find a way to get new customers without alienating the folks that have paid full price. Even better, to turn those new trial customers into loyal customers.

One of the challenges of selling to new customers cheap is that you might end up with a price shopper, someone who is always cheap, someone who will never convert into the kind of customer your high margin business needs to survive.

Priceline was a pioneer in figuring out how to isolate one customer type from another. The reason the original Priceline was so incredibly difficult to use (with blind reverse auctions, etc.) was that they wanted it that way. Anyone who was willing to through that hassle and anxiety to save $100 bucks for a ticket on Delta was clearly not someone Delta was going to have an easy time selling a regular ticket to. In other words, Jay Walker had figured out how to create a second type of air travel. One for cheapskates. The alternative to Priceline was a bus ticket or no travel at all... And Delta was fine with offloading excess seats to them, because they didn't have to worry about alienating their core customer.

Groupon is a very different thing. Here, it's not a hassle, it's the fun factor. Buying this way is exciting, you never know what's next, you do it with friends, the copy is funny, it's an adventure. As a result, many Groupon customers in fact do convert to becoming long time patrons of the place they tried, because they're not inherently cheap shoppers. When they're on Groupon they're hunting for fun. But if you offer an astonishing product and great service after they try you, they may convert into shopping with you for the long haul, not because you're a Groupon replacement, but because you bring them more than the alternatives.

And the magic basket? Tim Ferriss just finished offering more than $1600 worth of high-margin items in a basket to people who bought 30 copies of his new book. The marketing partners get trial among a group of people who are each paying more than the cost of a single item in the basket, these customers are proving they're not among the ultra-cheap. And the products are quasi-aligned, appealing to the same sort of consumer. Is there a cheaper way for one of these companies to reach this precise person? I'm not sure there is.

Imagine taking this even further and leaving out the book part. A basket of aligned items, all high margin, none from the market dominator, each holding out the possibility of future business... You could do this with an 8 pack of computer games or phone apps, or drink coupons from a dozen bars in the same town, or even clothing for guys size 38. Alex has experimented with this at Swagapalooza. I'm betting that there's quite a lot to be done in becoming this market creator/differentiator/middleman.

What's missing so far is an intelligent way to get permission, to follow up, to further organize those that do a trial and teach them and connect them so that they see a further incentive in sticking with the thing they just tried.

What's also missing is a willingness on the part of high-margin marketers to use their products and these sort of interactions as a replacement for the unmeasurable and largely ineffective lifestyle advertising they use now.

The net, once again, is making it easier to find and organize tribes of people, even for short durations. When you intersect these aligned groups with high-margin products, you can create fascinating commerce opportunities.

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Mish's Global Economic Trend Analysis

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• Common Sense Rules to Halt Runaway Union Benefits; What You Can Do To Help
• Philly Fed Research Paper Concludes Loan Modifications Counterproductive and "May Increase Strategic Defaults"
• Obama's Health Care Legislation Ruled Unconstitutional
• Time to Kill Build America Bonds (BABs)
• Detroit Mayor Plans to Halt Garbage Pickup, Police Patrols in 20% of City; Expect Bankruptcy, Massive Municipal Bond Turmoil in 2011

Common Sense Rules to Halt Runaway Union Benefits; What You Can Do To Help Posted: 13 Dec 2010 06:59 PM PST Montgomery County, Maryland proposes an arbitration rules change that would require arbitrators to place the highest priority on the county's ability to pay without hiking taxes. It also would require the arbitrator to weigh other factors, such as the interest and welfare of county taxpayers. I propose statewide rules that would mandate just that. Please consider Montgomery looks to tackle budget woes with fresh ammunition The Montgomery County Council looked to tighten its fiscal belt this week equipped with a fresh analysis of the county's budgetary plight and a plan to ensure that an arbitrator, if called in to break an impasse, would first and foremost consider the county's ability to pay union contracts. The proposal comes as a study by the county's Office of Legislative Oversight reports that the primary driver behind a 71 percent increase in spending by the county over a decade was a 64 percent increase in personnel costs. The average Montgomery County employee salary increased 50 percent and the cost of benefits rose more than 120 percent during the 10-year period, according to the study by OLO. The report, requested by the council, is "a message to the executive branch and county employee unions, ... that somewhere there has to be a balance met," said council Vice President Valerie Ervin (D-Dist. 5) of Silver Spring, who has proposed changing county law to make affordability the "priority" consideration in arbitration. Ervin's proposed bill would require an arbitrator to give the highest priority to the county's ability to pay. It also would require the arbitrator to weigh other factors, such as the interest and welfare of county taxpayers. During OLO's presentation to the council Tuesday, Councilman Philip M. Andrews (D-Dist. 3) of Gaithersburg said, "I believe the message is going forward that the council needs to see agreements that are not only affordable in year one, but sustainable in years three and four." Containing Runaway Spending The Washington Post chimes in with New bill would help contain runaway spending in Montgomery County PUBLIC WORKERS in Montgomery County have enjoyed a spectacular run over the last decade, thanks to munificent politicians, powerful unions and a badly tilted playing field that favors workers over management. Many workers who were on the county's payroll in 2000 have seen their salaries double, in addition to receiving ever-improving benefits. Since salaries and benefits amount to 80 percent of county spending - and almost 90 percent of school spending - the fruit of the county's profligacy is a structural deficit that has proved impervious to repeated tax increases. A bill before the County Council would provide officials with a lever to restore some balance. It was introduced by the new council chair, Valerie Ervin, a product of years in the labor movement. That Ms. Ervin would sponsor legislation to trim the power of public-worker unions is a hopeful sign - and a telling one of how tilted the field has become. The result is that Montgomery has the fattest and least affordable contracts in the region and is now cutting services to pay for them. In the event that an impasse in contract negotiations leads to arbitration, Ms. Ervin's bill would require the arbitrator to give priority consideration to the county's ability to pay without resorting to tax increases. This is common sense. Montgomery, County Facts and Figures Here are a few interesting facts about Montgomery County. Montgomery County is a county in the U.S. state of Maryland situated just north of Washington, D.C. and southwest of Baltimore. It is one of the most affluent counties in the nation, and has the highest percentage (29.2%) of residents over 25 years of age who hold post-graduate degrees. The county seat and largest municipality is Rockville. Most of the county's approximately 971,600 residents live in unincorporated locales, the most populous of which are Silver Spring, Germantown, and Bethesda, though the incorporated cities of Rockville and Gaithersburg are also large population centers. It is a part of both the Washington Metropolitan Area and the Baltimore-Washington Metropolitan Area. As of 2008, Montgomery County is the second richest county per capita in the State of Maryland and 8th richest in the nation, with a median household income of $91,440. Calling Chris Christie It's rather late in the game but we must applaud common sense whenever and wherever it is found. I like this proposal. It's a small down payment of what needs to happen. The ultimate goal is to kill public union collective bargaining entirely, scrap Davis-Bacon, dump prevailing wage laws, and legislate mandatory right to work laws that would be binding across all 50 states. Those things will not happen soon, and some of them cannot happen at the statre level. However, the proposal for arbitrators to place the highest priority on ability to pay without hiking taxes looks like something that can be accomplished en masse at the state level, for all public union negotiations within a state. Send a Message to Chris Christie Is anyone on Chris Christie's staff tuned in? If so, please take this taxpayer-friendly idea and run with it. To ensure the message gets through, please Contact Governor Chris Christie, no matter what state you live in. If he acts on this idea, other governors will follow. That link opens up a form, so select a topic of Pension and Retirement. The sub-topics for labor make no sense. Put in a subject line something like "Common Sense Rules to Halt Runaway Union Benefits". Write in your own words what you think needs to be done. This is what I wrote. Dear Governor I applaud your efforts to rein in public union graft, untenable wages, and especially untenable benefit packages wildly out of tune with wages and benefits in the private sector. I came across an article in the Washington Post about how Montgomery County, Maryland proposes arbitration rules change that would require arbitrators to place the highest priority on the county's ability to pay without hiking taxes. It also would require the arbitrator to weigh other factors, such as the interest and welfare of county taxpayers. Here is a more detailed link from the Maryland Gazette. http://www.gazette.net/stories/11252010/polinew173515_32533.php Instead of having each county tackle these issues on their own, I believe you should tackle this at the state level REQUIRING that all public union arbitration boards "place the highest priority on ability to pay without hiking taxes". Such laws would allow county boards to proceed with confidence in arbitration disputes. Currently many boards will not go to arbitration because arbiters nearly always side with unions. Thank you very much. Mike "Mish" Shedlock Whether you live in New Jersey or not, please contact Christie. Whatever he can accomplish other governors will consider. However, please don't stop with the state of New Jersey. Pass this idea on to the governor in your state as well. Here is a complete list of Email addresses, phone numbers, and Fax numbers for US Congress and Governors If enough people respond, we will see change, one state at a time. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Philly Fed Research Paper Concludes Loan Modifications Counterproductive and "May Increase Strategic Defaults" Posted: 13 Dec 2010 12:16 PM PST To all those who insist lenders are not doing enough loan modifications, a Federal Reserve Bank of Philadelphia research paper suggests that current loan modification programs may have unintended consequences for consumer behavior, specifically, "loan modifications may increase borrowers' incentives to default on their first mortgage while remaining current on their second mortgage." Please consider Strategic Default on First and Second Lien Mortgages During the Financial Crisis by Julapa Jagtiani and William W. Lang. While the change in priority of defaults between mortgage and non-mortgage debt has received a good bit of attention, this paper focuses on an issue that has not received much attention: priority of default between first mortgages and second lien mortgages on the same home. Why might households default on their first mortgage but not default on their home equity loans? One explanation for this behavior is that households do not act strategically but rather default because they are unable to make loan payments – the "inability to pay" hypothesis. An alternative explanation suggests a more strategic approach to default. Some households that anticipate ultimately going to foreclosure may wish to stop paying their largest debt payment, which is typically their first mortgage payment. However, since foreclosure can be a slow process, these borrowers may decide that they are better off continuing to make their home equity payments to allow them to maintain some access to credit (e.g., unused HELOCs, unused credit card lines, additional credit card or card loans). This explanation would suggest that consumers with high unused HELOCs would be less likely to default on their home equity loans, even though they have defaulted on their first mortgage. Loan modification programs may provide incentives for homeowners to default as homeowners are not likely to be approved for a modification unless they have missed their mortgage payments. In some cases, borrowers may need to be as late as 90 DPD for their accounts to be handed over to the modification department so that their loans could be renegotiated. Since most loan modifications are modifications of the first mortgage, the availability of a loan modification may provide incentives for borrowers to stop paying on their first mortgage while staying current on their second. We investigate the role of loan modification further by examining default behavior both before and after (re-default) the modification. Focusing on modified loans only, we find that, on average, about half of these modified loans were delinquent (at least 60 DPD) prior to the start of the modification and most of them returned to the current status after the completion of modification. However, a large portion of these loans actually re-defaulted within six quarters after the modification – specifically, 47 percent of these loans became at least 60 DPD and 38 percent became at least 90 DPD within six quarters following the modification. Conclusions and Policy Implications Interestingly, there is little evidence that many borrowers have decided to strategically default on second liens while maintaining payments on first mortgages. Instead, our results indicate a significant declining trend (for 2008-2009) for defaulting on the second lien while keeping the first lien current, controlling for risk characteristics of the borrowers and loan types. We also find that negative equity, proxied by LTV and/or CLTV exceeding 90 percent, has been the primary reason for homeowners to default on their mortgages overall. Negative equity is a necessary but not sufficient condition for strategic mortgage default. While some of these homeowners default on both first mortgages and second lien home equity lines, a large portion of the delinquent borrowers actually keep their second lien current. This behavior is generally more common with people who have HELOCs (rather than HELOANs) and is more common when there is a larger unused line of credit. Our results overall suggest that people default strategically as their home value falls below the mortgage value; they exercise the put option to default on their first mortgage. However, they tend to keep their HELOCs current in order to maintain the credit line available to them, particularly for those who have already used their credit card lines. Credit quality as reflected in the types of mortgages (prime, alt-A, or subprime) does not seem to play a significant role in determining this behavior. In addition, we find that loan modifications may increase borrowers' incentives to default on their first mortgage while remaining current on their second mortgage. Overall, our empirical findings provide a better understanding of consumer strategic default behavior and implies that current loan modification programs may have unintended consequences for consumer behavior. Default Rates Across Financial Products click on chart for sharper image Note: LPS Applied Analytics (McDash), consists of all mortgage loans issued by nine of the top ten mortgage servicers in the U.S., covering approximately 75 percent of outstanding mortgage loans as of year-end 2009. Home Equity Loans vs. Home Equity Lines of Credit click on chart for sharper image One look at that second chart tells you all you need to know about why second lien holders (specifically, HELOC lenders) do not want to speed up foreclosures or accept any modification agreements that would wipe them out. People would rather give up their house than their autos or their credit lines. Moreover, the longer the delays, the more incentive there is for homeowners to make strategic defaults on their mortgage. The proper conclusion is that efforts to delay foreclosures by loan modifications simply makes matters worse, a position I have taken since the beginning as a matter of plain common sense. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Obama's Health Care Legislation Ruled Unconstitutional Posted: 13 Dec 2010 10:32 AM PST The centerpiece of the Obama health care legislation was a provision that required everyone to buy health insurance. The idea behind that provision, which I always thought unconstitutional, was to force those in their 20's and 30's to buy health care at inflated prices to help lower prices of those in retirement who would need more services. Recall that various health care providers supported the legislation only because Congress mandated everyone to buy in. Today, a Virginia Federal District Judge swatted that provision and recommended the Supreme Court hear the case, bypassing the Circuit Court of Appeals. Please consider Virginia health-care ruling strikes down key provision of Obama's plan A federal judge in Virginia ruled Monday that a key provision of the nation's sweeping health-care overhaul is unconstitutional, the most significant legal setback so far for President Obama's signature domestic initiative. U.S. District Court Judge Henry E. Hudson found that Congress could not order individuals to buy health insurance. In a 42-page opinion, Hudson said the provision of the law that requires most individuals to get insurance or pay a fine by 2014 is an unprecedented expansion of federal power that cannot be supported by Congress's power to regulate interstate trade. "Neither the Supreme Court nor any federal circuit court of appeals has extended Commerce Clause powers to compel an individual to involuntarily enter the stream of commerce by purchasing a commodity in the private market," he wrote. "In doing so, enactment of the [individual mandate] exceeds the Commerce Clause powers vested in Congress under Article I [of the Constitution.] Leave it to the Obama administration to ram down everyone's throat a bill whose centerpiece is unconstitutional. Whether the president would just forge ahead without that provision is unclear, but the health-care industry who wrote the legislation will not like it one bit. The provision does not kick in until 2014, but we should not wait until the last minute to decide what to do about it, given there are 25 other objections to the bill including a joint filing by 20 states. We need a quick ruling. If the administration asks the Supreme Court to hear the case, most likely it would. It might anyway, regardless of what the President wants, based on the recommendation of District Judge Henry Hudson. Clearly the case is headed to the Supreme Court, so why not send it there right away? Should the mandated buy provision be struck down by the Supreme Court, the entire bill will need to be reworked. A replacement bill in the next Congress would not look anything like this one. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Time to Kill Build America Bonds (BABs) Posted: 13 Dec 2010 08:45 AM PST In response to Exceptionally Strange Bedfellows; More Cookies! Oh Boy! I received an email from a former municipal bond trader "FMBT" for one of the largest municipal bond issuers in the US stating many reasons why it's vital to put an end to Build America Bonds (BABs) From "FBMT" on Killing BABs Hello Mish, I have been an avid reader of your blog for over 3 years now, and was a municipal bond trader for over 5 years. I wanted to write to you today about the about the need to contact our representatives and block any extension of Build America Bonds. These bonds were sold to us as a "costless" way to help municipalities get financing. Well, there are two major problems with that logic: 1. They are extremely costly. The logic suggested when BABs were first introduced was that the federal government would pay 35% of the coupon, and investors would be taxed 35% ordinary income so the subsidy would be a wash. In theory, this makes sense. However, in practice, the large majority of these bonds have been sold to tax-exempt and overseas investors, who pay no US taxes. Many overseas investors view municipal debt as a diversifying asset class, but until BABs it was very difficult for them to gain exposure to the market. Articles have been written on Bloomberg and the Wall Street Journal about how BABs have opened up the municipal market to overseas investors, quoting many municipalities and brokerages who underwrote the debt so this is a point that cannot be argued against Assuming that a majority of the investors are tax-exempt and taking the following facts into account: a. Roughly $250 Billion of BABs have been created b. Most of the BABs are long-dated obligations so the value of the bonds is mostly in the coupon, not the principal c. The Federal Government provides 35% of the coupon d. This program has cost US Taxpayers as much as $250*35%=$87.5 Billion over the past year-and-a half. IT IS NOT A WASH. 2. These Bonds are assumed to have an implicit guarantee in the Municipal Market. BABs are the first time that the federal government was directly responsible for payments from a state or local government. Municipal market professionals will argue (and the letter of the law would suggest) that only the municipality is the only credit on the hook in the case of bankruptcy, not the federal government. We have heard this before with the implicit guarantee of GSE debt. Fannie and Freddie will end up costing US taxpayers $100s of billions if not trillions. The end game is the same for many municipalities. They are bankrupt, they are broke, and BABs is the first step towards federalizing that debt. How many municipal professionals sell these bonds to their overseas clients on the basis of "there is no way the federal government will not step in"? The moral hazard in these instruments is very high. We must contact our representatives and tell them to kill any attempt to add BABs to the tax agreement. These instruments are dangerous, unnecessary, costly, and a threat to our system. This is an issue of utmost importance, and I'm glad you are one of the few who understands what is at risk. Please phone, email or Fax your legislative representatives, especially your senators, and tell them to make sure to scrap Build America Bonds. Here is a complete list of Email addresses, phone numbers, and Fax numbers for US Congress and Governors. Unfortunately, many senators use a form. It may be easier to call. First, click on their name and see if there is an email address. In addition to emailing or calling your own representatives, Please email House Speaker Boehner Regarding BABs. That link will put in a subject line of "Stop the Build America Bond Program" Here is a sample email. Please use your own words. Dear Senator [Speaker, Rep] Please vote NO for any extension of the Build America Bond program. The US government should NOT be backing, sponsoring, or guaranteeing state or municipal debt. Build America Bond have already cost taxpayers $87.5 billion because the bonds have primarily been sold to tax-exempt and overseas investors who pay no US taxes. The worst part however is the Federal guarantee. We have gone down that road one time too many already. Taxpayers are already on the hook for hundreds of billions of dollars of Fannie Mae and Freddie Mac debt because of it. We cannot afford to make the same mistake again. Please vote NO for any extension of Build America Bonds. Your Name Your City, State, Zip Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Detroit Mayor Plans to Halt Garbage Pickup, Police Patrols in 20% of City; Expect Bankruptcy, Massive Municipal Bond Turmoil in 2011 Posted: 13 Dec 2010 01:09 AM PST Detroit has been bankrupt for years. It simply refuses to admit it. Detroit's schools are bankrupt as well. A mere 25% of students graduate from high school. Yet, in spite of hints and threats from mayors and budget commissions, and in spite of common sense talk of bankruptcy, Detroit has not pulled the bankruptcy trigger. In a futile attempt to stave off the inevitable one last time, Mayor Bing's latest plan is to cutoff city services including road repairs, police patrols, street lights, and garbage collection in 20% of Detroit. Bing to Cede 20% of Detroit to Gangs and Homeless City officials suggest this will not shrink the size of the city. Perhaps it won't shrink Detroit on Google Maps. However, Bing's plan would effectively surrender 20% of the city to gangs and the homeless. Would you want to live in one of the gang war-zones that his plan would create? Would you want to live in a bordering neighborhood or in a bordering city? Regardless of your answer, Bing's plan cannot and will not work and I believe Detroit will, sometime in 2011, file for bankruptcy. If so, expect massive turmoil in municipal bonds. Less Than a Full-Service City The Wall Street Journal discusses Bing's plan in Less Than a Full-Service City More than 20% of Detroit's 139 square miles could go without key municipal services under a new plan being developed for the city, with as few as seven neighborhoods seen as meriting the city's full resources. Those details, outlined by Detroit planning officials this week, offer the clearest picture yet of how Mayor Dave Bing intends to execute what has become his signature program: reconfiguring Detroit to reflect its declining population and fiscal health. Yet the blueprint still leaves large legal and financial questions unresolved. Mr. Bing's staff wants to concentrate Detroit's remaining population—expected to be less than 900,000 after this year's Census count—and limited local, state and federal dollars in the most viable swaths of the city, while other sectors could go without such services as garbage pickup, police patrols, road repair and street lights. Karla Henderson, a city planning official leading the mayor's campaign, said in an interview Thursday that her staff had deemed just seven to nine sections of Detroit worthy of receiving the city's full resources. She declined to identify the areas, but said the final plan could include a greater number. "What we have found is that even some of our stronger neighborhoods are at a tipping point with vacancy," Ms. Henderson said. "Vacancy adds to blight and blight is a disease that takes over the whole neighborhood. So the sooner we can get those homes occupied, the better for the city." Officials bristle when their efforts are described as downsizing, saying their aim is to repurpose portions of the city, not redraw its borders. "We will not be shrinking the city," Ms. Henderson said. "We are 139 [square] miles and we'll stay that way." Repurpose or Abandon? Of course the Mayor's office did not say they would abandon sections of the city to gangs. But how the hell can repurposing as described above possibly mean anything else? What's next? Barbed wire? Oh wait a minute, Detroit already has tried that. Razor-wire too. Here's a picture of Detroit's clearly abandoned repurposed Michigan Central Train Depot. Image courtesy of the Journal and the AP. Detroit's Tax Collection Process The Detroit Free Press points out Detroit botched Packard plant tax collection The City of Detroit has failed for nearly four years to send property tax bills to the owner of the Packard plant, costing the city badly needed cash. At 3.5 million square feet, the plant is by far the largest derelict property in Detroit. It wasn't until the Free Press began making inquiries last week that the city's assessor's office returned the property to the tax rolls -- with an assessed value of nearly $1.6 million. The change came nearly four years after a Michigan Supreme Court decision prompted the city to surrender the century-old plant to Bioresource, a company whose last listed corporate representative is a convicted drug dealer. Last week, less than 18 hours after a reporter questioned why the property was listed as city-owned, the assessor's office changed its status to "taxable." The property's assessed value ballooned from almost nothing to nearly $1.6 million. Robin Boyle, professor of urban planning at Wayne State University, said the error underscores "just how challenged the city is in dealing with the fundamental task of title, control, oversight and follow-through" with property throughout the city. "To me, that is a fundamental problem that leaves Detroit in a consistently weakened position. It can't even do the basics," Boyle said. "This is a huge piece of real estate, and yet, there's still confusion." Although only one tenant remains on the property, the plant is not entirely neglected. Scrappers prowl it for metal. Graffiti artists decorate its walls. Someone perched TV sets atop pillars standing at least 15 feet tall. And it can all be yours for $13 million. David Wax, senior associate with Burger Easton & Co. in Farmington Hills, has listed the property for sale for a couple of years. He said there was a good deal of interest before the world economic crisis and before steel prices collapsed, making the Packard plant less attractive to buy and then demolish for its metal. "For 13 years it's been vandalized, raped, burned, stripped of anything of value," Wax said. And on any given day, he said, you can hear "people with hammers and cutting torches cutting steel out of the building." Packard Closeup Images The Business Insider has fantastic set of images of the beautiful $13 million Packard property. Here are a couple of those images. Now that the building has been put back on the active tax rolls to a convicted drug dealer, this is the sequence of events I imagine would transpire were Detroit to stay on its existing path using Bing's plan as the roadmap. 1. Detroit will send a tax bill to Bioresource 2. Bioresourse will not pay the bill 3. Detroit will reacquire the building in a tax sale with no bidders 4. In a couple of years Detroit will realize it once again owns the building 5. Detroit will repurpose the Packard plant with the same success as depicted in the Michigan Central Train Depot image. Detroit Schools Bankrupt Flashback July 24,2009: The Wall Street Journal reports Detroit's Schools Are Going Bankrupt, Too Now's the time to cast off collective bargaining agreements and introduce school choice. 'Am I optimistic that they can avoid it . . . ? I am not." That's what retired judge Ray Graves said this week when asked whether the Detroit public schools, which he is advising, would be forced into bankruptcy. Facing violence, a shrinking student body, and graduating just one out of every four students who enter the ninth grade on time, the city's schools have been stumbling for years. Now they face a seemingly insurmountable deficit and are expected to file for bankruptcy protection at about the time that students should be settling down in a new school year. As embarrassing as such a filing would be, it also may be the only thing that can force the kinds of changes Detroit schools need—as the financial turmoil is just the latest manifestation of a system in terminal decline. Detroit is like many urban school districts—large, unwieldy and bureaucratic, with a powerful union that makes the system unable to adapt to changing circumstances and that until very recently had an indulgent political class that insulated it from reform. That insulation came in two forms. The first was neglect. Mayor Kwame Kilpatrick spent several years distracted by a scandal stemming from his affair with a staffer. He resigned last year, pleaded guilty to obstruction of justice, and was sentenced to four months in jail. Had he been an effective mayor, he might have also been a powerful advocate for students. The other insulating force was a conscious decision to wall off Detroit from charter schools. In 1993, Michigan's legislature made it difficult to create new charters in Detroit by declaring that only community colleges could authorize charters for primary and secondary schools in "First-Class Districts"—defined as those with more than 100,000 students. Detroit was the only First-Class District. In 2003 the state, under pressure from the Detroit Federation of Teachers, turned down a gift of $200 million from philanthropist Robert Thompson that would have established 15 charter schools in the city. Those charters are needed today. The net result has been a school system that's been coming apart as the teachers union has dug in its heels. In 2006, the union illegally went on strike, killing a plan to force teachers to take a pay cut to balance the system's books. Collective Bargaining has Morally and Fiscally Bankrupted Detroit Schools Read that again. Under pressure from the Teachers' Union, Detroit turned down $200 Million. That was in 2003 dollars. Wow. No doubt the union "did it for the kids". For more on the appalling behavior of Detroit's teachers' unions please see Detroit Public Schools (25% graduation rate) teachers unions opposing highly qualified volunteer teachers. It is time to kill collective bargaining for public unions, every one of them, and nation-wide, not just Detroit. Detroit Bankruptcy Looms Flashback April 6, 2010: Detroit Bankruptcy Looms with Deficit of $446 Million in Budget of $1.6 Billion Detroit has hit the end of the line. It's budget deficit is between $446 million and $466 million (28% to 29%) of $1.6 billion with few ways other than drastic cuts in wages and benefits to address the problem. If unions will not give in (and they won't), Detroit Faces Bankruptcy. With that introduction, inquiring minds are diving into the Citizens Research Council report on The Fiscal Condition of the City of Detroit The Economic Base The deterioration of the economic base of the city has accelerated. There were an estimated 81,754 vacant housing units (22.2 percent of the total) in Detroit before the recession; that number increased to an estimated 101,737 (27.8 percent of the total) in 2008. The average price of a residential unit sold in the January through November, 2009 period was $12,439, down from $97,847 in 2003. Remaining businesses and individuals are challenging property tax assessments on parcels that have lost value and, in some cases, cannot be sold at any price. More than half of employed city residents work outside the city limits; the metro area has the highest unemployment rate of the 100 major metro areas in the U.S. Detroit Should Embrace Bankruptcy The only legitimate solution for Detroit is to shed pension obligations, privatize everything it can including the fire department, and dump unions contracts en masse. Since those items can only happen in restructuring, Detroit should openly embrace bankruptcy. Detroit Warns of Bankruptcy as It Prepares Bond Sale Flashback March 5, 2010: Detroit Warns of Bankruptcy as It Prepares Bond Sale Detroit, the largest U.S. city whose debt is rated below investment grade, warned investors of the risk of bankruptcy as it prepares to sell $250 million of bonds to help close its budget deficit. The city told bondholders in a March 2 preliminary offering statement that while it hasn't taken steps to reorganize under Chapter 9, it may have few other options if its financial condition worsens. Detroit officials also detailed the steps they would have to take should bankruptcy become necessary. "If the city's financial status were to deteriorate further the city's options to improve its fiscal health may be limited," Detroit said in the statement. Bondholders "should not expect that their rights to payment and remedies will not be adversely affected by filing under the bankruptcy code." "We are still in a financial crisis but insolvency isn't on the horizon or on the agenda at this time," Mayor Dave Bing said in an e-mail from his spokesman, Dan Lijana. The total deficit this year is estimated at $280 million. Bing Still Pretends - How Long Can It Last? For reasons unknown, Bing just cannot do what is right. He will not come flat out and say what everyone in their right mind knows - that Detroit is fiscally and morally bankrupt and so are its schools. Instead, on December 10, 2010 Detroit Borrows $100 Million for Police and Fire Headquarters. Detroit, whose population has dropped by half since 1950, borrowed $100 million to turn the MGM Grand Casino's former site into a headquarters for the police, fire and emergency-services departments. The city sold so-called Recovery Zone Bonds authorized under the U.S. economic-stimulus plan, borrowing at 4.55 percent, the city said in a press release today. The bonds, with the longest term maturing in 2035, were sold through the Michigan Finance Authority by investment banks led by Siebert Brandford Shank & Co., according to data compiled by Bloomberg. "The financial markets believe in what we're doing to bring fiscal responsibility back to Detroit," said Mayor Dave Bing, in a prepared statement today. So-called recovery zone bonds were included in the economic-stimulus package signed by President Barack Obama last year to help expand the economy of areas with poverty and unemployment. They're a type of Build America Bond that comes with a 45 percent interest subsidy rather than 35 percent rate under the Build America program, which expires Dec. 31. The bonds were rated A1, or fifth highest, by Moody's Investor's Service and AA-, or fourth highest, by Standard & Poor's. BABs Set to End December 31, 2010 Note the ridiculous rating of those bonds by Moody's and by Standard & Poor's. If the Federal government is backing those bonds, then they are AAA. If not, they are junk. There is no in-between. Thankfully, the extremely ridiculous Build-America-Bond program will expire on December 31. When it does, no one in their right mind will lend Detroit money, and that at long-last will mean "lights out" for Detroit. A new Republican governor takes over in Michigan next year, complete with a new Republican legislature. I believe Governor-Elect Rick Snyder will be amenable to fixing what ails Detroit and numerous other cities in Michigan. Should Mayor Bing not seek bankruptcy assistance, I propose for Governor Snyder to force Detroit into bankruptcy. It is the only hope Detroit has. Mayor Bing is clearly in over his head. Governor Snyder would be a hero if he can turn Detroit around, and outside of bankruptcy that appears impossible. Thus, forced or not, I believe Detroit will file bankruptcy in 2011, the state will accept it, and public unions will be forced to accept massive concessions in bankruptcy court. Look for massive turmoil in the municipal bond market as a result. Addendum: Mismanagement of Emergency Services Please consider Detroit paramedics fear they're losing the battle to save lives Over the past month, the troubled Detroit Fire Department has found itself trying to convince an angry public that it has not abandoned them. The latest debacle was a windblown inferno that torched at least 70 homes across the city. It was so bad that an 11-year-old dressed in a T-shirt and sneakers was pulling hose for the overwhelmed Fire Department. Firefighters from Warren, Dearborn and Grosse Pointe were called in. Mayor Bing passed it off as a natural disaster. But even before the fires, the competence of the department was called into question after a string of blunders in the past month related to its ambulance service. In August, firefighters from Engine 50 pulled two victims from a burning building. They requested two ambulances. No units available, they were told. A man cut off his toes with a lawn mower. Again, no unit available. Most shocking, perhaps, occurred when a building collapsed on six firefighters, half of whom were taken to the hospital in squad cars and fire trucks because there were no ambulances on the scene. If that is how people in uniform are treated, imagine what it is like for the average citizen in the dark of night. Fire Commissioner James Mack Jr., who also oversees the EMS system, said the morning after the fires the department's problems aren't a matter of mismanagement but poverty. "Everybody knows we are under budget constraints, so with those budget constraints we are maximizing the equipment that we have and the manpower that we have," Mack said. Some city leaders aren't buying it. Consider that today the Fire Department budget is $175 million, more than it was five years ago, even after adjusting for inflation. "What's wrong with the city?" asked City Councilman Gary Brown, who believes there is room to cut in the Fire Department's $175 million budget. "A vacuum in leadership. It's not a matter of funding. I suspect it's mismanagement." Brown asked Mack -- who served for six years as the second deputy commissioner under disgraced former Mayor Kwame Kilpatrick -- to deliver within 90 days a comprehensive plan to bring the ambulance response time down to a targeted eight minutes, which is the national standard. That was 170 days ago and Brown is still waiting for the report. The article tells many sad stories of people who died waiting for emergency services. Please read it. I repeat my claim: Detroit cannot be saved from within, bankruptcy is the best hope. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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