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Contracts are sacred only when rich people are getting paid

Shahien Nasiripour reports that J.P. Morgan plans to go hard against policies to modify underwater mortgages because contracts are sacred documents premised on the borrowers' "promise to repay."

This struck one union employee as a bit odd: After all, the business community is constantly demanding that autoworkers and steelworkers and other well-compensated laborers change their contracts to remain more in sync with the times. In those cases, contracts don't appear to be all that sacred, and employers' aren't seen as having some cosmic "promise to repay."

"Next time big business or Republican Governors or Mayors are talking about how working families need to 'sacrifice' or 'give back' for the good of the community by altering their contracts," e-mailed the AFL-CIO's Eddie Vale, "let's remember what happens when the shoe is on the other foot."

By Ezra Klein  |  April 13, 2010; 8:55 AM ET
 
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Comments

Ezra,


got a big problem with the title of the post. While you rightfully slam Chase for what their supposed tact is going to be making it a "rich vs poor" debate is wrong (IMO) on your part. Do you give credit to others not taking this tact or on slam those that you think do?

Do all "rich people" in your eyes break contracts?

That's like me saying that ALL union people want their adversaries "dead" from the attached link.

http://www.nj.com/news/index.ssf/2010/04/bergen_county_teachers_union_m.html

All contracts need to be taken seriously but if adjustments need to be made to make it livable for both parties then so be it. That means JP Morgan Chase should deal with it (because they got a sweet deal earlier) and unions should realize that givebacks that they give help them in the long run.

Perpetuating an "us against them" mentality helps no one.

Posted by: visionbrkr | April 13, 2010 9:17 AM | Report abuse

the notion that contracts forge some unbreakable bond absent other considerations isn't just wrong; it's literally in direct opposition to the great weight of contract doctrine.

there's a concept in contract law called unconscionability, which provides for the rescission of contracts when certain conditions are met. The term has a very specific meaning, and it's not just any old outrage that will trigger its deployment. however, given the underwriting standards we're hearing about from WaMu and elsewhere, it would not surprise me if many of these loans were issued on fraudulent and unconscionable terms. In other words, all of these promises to pay might be no promises at all.

As for contracts and promises to pay more generally, at this point, it's pretty clear that people should be walking away from their homes and leaving the bank with a useless piece of property. The better result, from the law-and-economics school, would be to avoid the forfeiture of the house, not saddle the bank with a useless husk, and possibly even modify the contracts.

of course, i hate the law and economics school because it makes sweeping theoretical suppositions about how the law works without the benefit of empirical verification or nuance. but on certain small bore problems, their model works well. this is one of these cases.

Posted by: masterlevitt | April 13, 2010 9:24 AM | Report abuse

Ezra: "go hard against policies to modify underwater mortgages because contracts are sacred documents premised on the borrowers' "promise to repay.""

Actually the mortgage contract is a promise to either repay the loan plus interest OR to return the property to the note holder. There is no absolute promise to repay a mortgage.

When banks accept a deposit from Joe Saver aren't they entering into a contract to get their money back plus a certain rate of interest that the bank agrees to pay based on making fiduciarily responsible investments? When banks use Other People's Money irresponsibly by making bad investments, aren't they violating their contract?

Posted by: JimPortlandOR | April 13, 2010 9:25 AM | Report abuse

For the second day in a row, I can say, "this is news?"

Posted by: bdballard | April 13, 2010 9:27 AM | Report abuse

Jim: Close, but not quite.

The bank is loaning money to the person ... er ... personally. For things like houses (where the cost is great and the initial investment usually small), we allow creditors to secure their debt against the whatever property the person purchased with that earnest money. If someone who had a pile of cash in his bank account stopped paying his mortgage, the bank would absolutely go after him first, and then foreclose on the property if they couldn't get the money out of him. It's cleaner, and it's a pile of cash, which is always less of a hassle.

Of course in practice this is a minor point, since this never happens. But it's worth pointing out that the agreement isn't "pay us or we take your house," but "pay us" with a secured debt.

The "contracts are sacred" argument doesn't make any sense for a great many reasons, though, considering we have a giant mechanism (bankruptcy) whose literal purpose is to modify and extinguish contracts. As far as this nonsense, I think that's a better counter-example than (exceedingly rare) unconscionability.

Posted by: Fnor | April 13, 2010 9:38 AM | Report abuse

Reforming executive pay should be a big priority, but it's never going to happen. The wealthiest 1% like having a minimum wage and will keep the game rigged any way they can. The list of executives getting huge pay days to screw up is so long it's unbelievable. And the idea that a few bad apples doesn't mean the whole system is messed up is ridiculous if a few bad apples make billions. Executives are in leadership positions and that means they have a responsibility to lead by example. Getting paid based on merit sets the right example for every working person and helps the US economy. Stealing what you don't deserve sets a horrible example for workers and has real consequences like this crisis. There are plenty of other professions with well paid workers doing things even more complicated or important than pushing around piles of financial garbage and those professions don't have the same pay distortions. I don't know any dentists or java programmers that get billion dollar checks for drilling holes in healthy teeth or writing software that always crashes.

Posted by: Candressuhmoose | April 13, 2010 9:52 AM | Report abuse

Don't forget this NYT piece, http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html?ref=magazine

Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials.

Posted by: akent07 | April 13, 2010 10:07 AM | Report abuse

Ezra sems to have very selective memory. Obvious exceptions to his rule include the recent auto bankruptcies. The autoworkers were very lightly touched, retaining compensation 100% above U.S. market levels for similar skills. The bond holders lost almost everything.

Posted by: HarryMoser | April 13, 2010 10:13 AM | Report abuse

It's not really the same though is it, Ezra? JP Morgan is actually owed money by these people, some of which the government will ask them to write off. Employees are not literally owed money by anyone when they're asked to change the terms of their contracts.

Posted by: bigmandave | April 13, 2010 10:19 AM | Report abuse

In this day and age of Wall Street and the Banking Community, the working man and woman of this country have learned contracts are no longer sacred and one's word means little to nothing.
The past 10 years of financial Corruption within the American Insurance and Business Sector has shown Americans they can no longer trust the financial industry of which continues to loan shark Americans at every chance they can thanks to the Fed's lending practices.
It's time for the Banking Industry and Wall Street to pay their part by stopping this loan shark game of high interest credit card and loan products of which do nothing but make financial matters worse for everyone.

Posted by: jtynoble | April 13, 2010 10:48 AM | Report abuse

Ezra ... I'd like to get a look at your personal financial statement . I'd also like to see your pay stubs . And finally ... I'd love to see your Federal Tax Return . I'm more than certain that you are making huge money , hand over filthy fist even as you deplore the hard earned worth of empoloyers . OH ... And yes ... I'd like very much to know where you plan to vacation and how much you plan to spend . I'm sure it's in your contract !

Posted by: lagnafrah | April 13, 2010 10:58 AM | Report abuse

Excellent article. I am sure that Ezra did not mean this in universal terms. It is not an article saying that ALL of anything must be one way or another.

The article shows the general thought process, and how it differs when Main St. is told to work hard and take the hits for the common good, but Wall St. has license to have it their way.

In the aggregate, I fully agree.

Read Harv: http://theHARVview.blogspot.com

Posted by: HarveyY | April 13, 2010 11:02 AM | Report abuse

I'm sure Klein is aware that labor contracts and the like expire at pre-agreed-upon intervals, and that they must then be renegotiated. I'm sure he wouldn't dishonestly conflate such things.

Posted by: msoja | April 13, 2010 11:07 AM | Report abuse

HarryMoser,

"Selective" is saying that the bondholders got "wiped out".

Bondholders -- which included a large number of speculative buyers who had bought distressed debt for dimes on the dollar -- received something like 40 cents per dollar. That's not exactly "wiped out".

With respect to the UAW, they had to make concessions for pay for new hires, vacation pay, elimination of a COLA adjustment, reduction in break times, changes in overtime pay, suspension of performance bonuses, modifications to the unemployment benefits program -- these on top of concessions made in 2007 negotiations. Not to mention the fact that a lot of long-time hires lost their jobs.

Posted by: JPRS | April 13, 2010 11:07 AM | Report abuse

All I can say is that the executives from all of the failed banks had their bonuses and golden parachutes honored, even though they crashed the economy into a wall. The sanctity of contracts was repeated over and over when it was their contracts that were being considered. Somehow when labor contracts for say state workers in Colorado, who are forced to take 5-10 furlough days (leave without pay, this amounts to over 5% cut in take home wages) to help balance the budget, there is a distinct sound of crickets from those contracts are sacred people. Also, the govt through AIG paid 100 cents on the dollar on CDS because "contracts are sacred" to Goldman Sachs, Morgan Stanley etc. The double standard it clear for anyone who wants to look.

Posted by: srw3 | April 13, 2010 11:28 AM | Report abuse

srw3,

you are 100% right on AIG. Whoever negotiated that monstrosity needs to re-take Negotiating 101.

We are also in NJ dealing with individual school districts throughout the state that are deciding in their local boards whether to take a pay freeze (not a reduction but a freeze) or lay teachers and or administrators off. Sadly the older teachers are voting for the layoffs and the newer, less tenured ones are voting for the freeze.

Oh and the union is sending emails out wishing the governor were dead. I've also seen it make the rounds of facebook on teachers I know personally. Stay classy union folks!

Posted by: visionbrkr | April 13, 2010 11:44 AM | Report abuse

I'd be entirely in favor of simulatenously outlawing unions and (if this isn't already true - it could well not be) giving shareholders a very strong say in executive compensation. If the owners of the companies want to pay these guys millions to screw up, then that is their own perogative. If companies freely want to pay their employees at unsustainable levels, then they can do so. No one should be paid more than the value they create, as assesed by the people paying them. If employees - labor or management - feel they are being underpaid, then they are free to find work elsewhere. At the same time, neither executives nor union workers should be bailed out by anyone else.

In any case, as a current renter I'm not thrilled to force the banks to modify any mortgages that the banks are already not willing to modify. Doing so is going to reduce the availablility of credit, and increase the price of credit, to future borrowers (i.e. me). I heard plenty of the now underwater crowd enthusiatically talk about how they were making money hand over fist back in 2005-2007 after putting no money down on a house they clearly couldn't afford, and how I was being stupid for throwing my money away by renting a modest one bedroom apartment. If there was fraud, that's one story, but most people knew what they are doing and they don't get any sympathy from me.

At the end of the day, the only market intervention I think is necessary is to limit leverage. Banks should be required to fund themselves in part with contingent debt (which converts to equity if the bank would otherwise go down), and people need to put 15% or more down when they buy a home. No more tax breaks for interest either.

Posted by: justin84 | April 13, 2010 11:57 AM | Report abuse

Srw3,

I agree with you that people who crashed the banks still often times ended up getting paid big. I don't think the argument then is to go bailout everyone - I think we need to bailout no one. I'm sure shareholders don't want to be paying the failed bankers obscene sums - I'm entirely in favor of legislation increasing the power of owners to set management pay. At the same time, union workers are clearly paid more than the market will bear, often to the detriment of their employer. Let individuals be free to negotiate their own compensation with employers.

Have a basic social safety net and then let the labor market work - whatever happens, happens.

Posted by: justin84 | April 13, 2010 12:02 PM | Report abuse

@vb: take a pay freeze

If their contract isn't up and they bargained for a pay increase, isn't that breaking the sanctity of the contract?

Using AIG to funnel profits to Goldman and Morgan Stanley was a perversion of the govt's role. They made deals with a company that should have failed, but instead of bankruptcy, where creditors like them would get in line, they got the treasury to pay full price for junk products. And Goldman knew these were junk, because they shorted these products and made additional billions off the govt dime.

Posted by: srw3 | April 13, 2010 12:04 PM | Report abuse

@ justin84: At the same time, union workers are clearly paid more than the market will bear, often to the detriment of their employer. Let individuals be free to negotiate their own compensation with employers.

So back to the robber barrons? Where is your evidence that unions are overpaid? Compared to what? Collective bargaining is the only way workers can partially balance out the tremendous power that employers have. Without unions bargaining, there would be no 40 hour week, no overtime, no vacations, no worker safety. Notice that most of the mine disasters in the last 20 years were at nonunion mines, where the workers have no recourse when they see dangerous conditions. Union miners can cite dangerous conditions to the mine safety committee at union mines.

How quickly people forget why unions were formed in the first place.

Posted by: srw3 | April 13, 2010 12:13 PM | Report abuse

srw3,

i don't work with them myself so i don't know the inner workings of them but if they are year to year then no it doesn't break the sanctity of the contract.

If they do then I guess their only options is layoffs. We're seeing plenty of them too.


They will also in the future hopefully see the harsh reality of how the other half has lived for years now and change their ways. Unfortunately they're taking the hard stance we'd all expect them to take. I just hope the Christie doesn't fold to their pressure and tactics that they've used in the past and are continuing.


btw if it wasn't clear i'm 100% for justin's idea of outlawing unions in favor of stronger regulation on employers (ie serious fines, jail time etc).


Sadly justin responsibility doesn't pay anymore. In this bail-out world we now seem to live in you should have lived outside your means. It shouldn't be that way for individuals and it shouldn't have been that way for AIG but now that we're in this mess someone has to fix it/pay for it. Enter the taxpayer.

Posted by: visionbrkr | April 13, 2010 12:22 PM | Report abuse

@Vision: "Perpetuating an 'us against them' mentality helps no one."

It helps some people. As recently demonstrated, it can help the minority party. Class warfare has helped Democrats and "with us or against us" patriotism has served the Republicans.

And, on a personal level, regarding your opposition as inherently motivated by greed, fear, irrational religious believe, anger, racism, sexism, repressed homosexuality, mental illness, hate of America or a love of Stalinism is liberating. You never had to regard them seriously, you never have to consider any of their ideas, and you enjoy the self-satisfaction of constantly patting yourself on the back for being too smart and too good to ever be "that kind of person". You know the kind I'm talking about. The kind that votes for Republicrats. Those kinds of people.

Posted by: Kevin_Willis | April 13, 2010 12:30 PM | Report abuse

BTW, JP Morgan is arguing that contract law is so sacred that they'll shoot themselves repeatedly in the foot to uphold it? They want for force folks into bankruptcy, and thus collect nothing (or very little, after repossession and liquidation) instead of modifying contracts so they get something, if perhaps at a lower interest rate?

Am I the only one that can imagine an amortized interest adjustment, so that someone with a 5% mortgage gets taken down to 3.5%, but the bulk of that savings is seen off the front of the loan (where the portion of the payment that is interest is heaviest)? It provides immediate relief, the bank still gets more on their money than they would from repossession, people get to stay in their houses and worry about starting a business or getting a new job instead of worrying about eviction or bankruptcy . . .

Posted by: Kevin_Willis | April 13, 2010 12:35 PM | Report abuse

Kevin,

in regards to your most recent post (because your first one honestly has me scratching my head ;-),

how is that FAIR to those consumers who lived within their means? How is that fair to the justin's of the world who didn't go out and get a home until they could afford it?

If banks and insurers shouldn't be too big to fail should individuals be too little to fail?

i'm not judging either way I'm just asking. Shouldn't the same rules apply to EVERYONE?

Posted by: visionbrkr | April 13, 2010 12:43 PM | Report abuse

justin84,

For starters the price of credit is going to go up anyways. The lows that we've had are a historical anomaly propped up by foreign investment, loose regulation, and loose fiscal policy.

The good news for a new buyer is that higher interest rates equals lower principal which equals lower home prices (basically a wash for a new home buyer). Higher lending standards equal fewer buyers, which equals lower prices.

Most of the talk about principal write-down has been based on the premise that a person would need to file for bankruptcy (e.g. something that a person could do on a primary residence until laws were changed in 2005; these days the protections only apply to investment properties and vacation homes). So it's not exactly like your friends would be getting off free. They would need to demonstrate the need for bankruptcy protections in the first place; and the black mark would follow them around for years (having consequences for jobs, etc).

The argument for the write-downs is that it will get the market back on track sooner than otherwise (e.g. because it will force banks to more accurately account for the true value of loans on their books; the pain of the recovery will be prolonged if more cr-p still needs to work its way through the financial system).

Another side of the coin -- the fact that the housing market was going nuts encouraged builders to create new housing inventory, which in turn caused rents to largely flatten. The housing bubble has had mostly positive benefits for renters. Some may have missed out on the speculative bets that some home buyers made, but by and large they've gotten a better deal than they would have otherwise. In the absence of the housing bubble, it's very likely that rents would have escalated at a higher rate. Count yourself as lucky.

Posted by: JPRS | April 13, 2010 12:43 PM | Report abuse

visionbrkr,

Sure rules should apply uniformly.

So why is it that principal write-downs can apply to a 2nd, 3rd, 4th, 5th, etc, etc home, in the event of a bankruptcy, but not on a primary residence?

Why is it that a person who entered into a contract on a home prior to 2005 when the "Consumer Protection" and Bankruptcy Reform Act went into effect, but they can no longer take advantage of a principal write-down on a primary residence in the event of a bankruptcy?

In practical terms the changes to bankruptcy law effectively revised contracts for millions of debtors to the advantage of creditors. The law didn't qualify that it only applied to debt contracted AFTER the bills passage -- it applied to all debt even debt created prior to the enactment of the law.

Posted by: JPRS | April 13, 2010 12:55 PM | Report abuse

@vb: I don't work for them either, but generally contracts run for 2-4 years. Notice that there was no mention of pay freezes as a part of contract negotiations for next year. So I assume that the state wants to break a signed contract with the union. Just like the govt did to all those failed banks and investment firms...oh wait...

Posted by: srw3 | April 13, 2010 12:57 PM | Report abuse

@kw: Class warfare has helped Democrats

Its only called a class war when we fight back. Wasn't it class warfare on the working class when 2 rounds of bush tax cuts went mostly to the top 5% of income earners? Funny how it never gets reported that way....Wasn't it class warfare when Elane Chao basically emasculated the labor dept except for helping management break unions and strengthen management's position? Funny how it never gets reported that way....

Posted by: srw3 | April 13, 2010 1:10 PM | Report abuse

I think there is a better way to look at it. When a collateralized loan contract is broken, the collateral returns to the lender and the borrower is no longer obligated to pay. When an employment contract is broken, the employee no longer has to come into work and the employer no longer has to pay.

There's no sanctity of contracts...

Posted by: staticvars | April 13, 2010 1:13 PM | Report abuse

@ staticvars: only part of the story. When a person defaults on a loan, that stains their credit history for 7 years. So there is a penalty on the borrower. There is no similar penalty when an employer breaks a contract with a worker. Union contracts specify the length of the obligation the employer has toward the workers. Shortening that period is breaking a contract. Under your understanding, workers could strike at any time if they felt the contract was not in their best interest and stop working, just like employers can break a contract when it suits them.

Posted by: srw3 | April 13, 2010 1:19 PM | Report abuse

Also, remember the hue and cry about the Wall Street bonuses.

It's funny how blue collar workers always have to make adjustments to their contracts because of economic conditions but at the very suggestion that Wall Street do the same, the media and Beltway pundits are aghast at this horrible violation of contractual obligations.

It's class warfare and workers have been steadily losing for decades.

Posted by: lol-lol | April 13, 2010 1:29 PM | Report abuse

srw3,

the state doesn't necessarily want to break the contract. They'd LOVE I'd expect not to be in a recession that they're in, to be getting in tax revenues that they're not and to have healthcare costs for the state not increase at a ridiculous rate that they are. But in lieu of that their only options are:

1-SUGGEST that they take a pay freeze for a year, mind you a year when the private sector (that is paid less than them btw) has been bleeding jobs by the millions.

or

2-have layoffs.

the NJSBA has recommended the freeze. Some have accepted, some not.

http://www.njsba.org/press_releases/school-wage-freeze.html


While realizing you don't know as much of the detail as its not as close to home for you how would you suggest to resolve the conflict? We're already the highest taxed state in the country with property taxes double what they are in the state ranked #2.

Posted by: visionbrkr | April 13, 2010 1:40 PM | Report abuse

@ staticvars: only part of the story. When a person defaults on a loan, that stains their credit history for 7 years. So there is a penalty on the borrower. There is no similar penalty when an employer breaks a contract with a worker. Union contracts specify the length of the obligation the employer has toward the workers. Shortening that period is breaking a contract. Under your understanding, workers could strike at any time if they felt the contract was not in their best interest and stop working, just like employers can break a contract when it suits them.

Posted by: srw3 | April 13, 2010 1:19 PM | Report abuse


srw3,

does the owner of the company not sustain costs in hiring and training a new employee? Don't tell me you think that disgruntled union employees always give 100% do you? You're not that naive. Of course productivity in many industries is difficult to gauge but if you've got teachers for example that are spending their "free time" putting up facebook sites like this one you can bet its less time that they're spending on their lesson plans.

http://www.facebook.com/pages/NEW-JERSEY-TEACHERS-UNITED-AGAINST-GOVERNOR-CHRIS-CHRISTIES-PAY-FREEZE/311272548387?v=info

Posted by: visionbrkr | April 13, 2010 1:48 PM | Report abuse

visionbrkr,

Of course, odds are the employee is likely to be a lot less disgruntled if he or she is part of a union. The union will ensure that that workers rights are protected and that person's labor captures something approximating a living wage. The existence of the union is much more likely to ensure that workers aren't forced to work off-the-clock; they limit the possibility that the person is a child-laborer.

In the case of a company like GM, while relatively generous benefit packages put the company at a competitive disadvantage, the crappy product line dreamed up in the executive suites sure didn't help either. Even though Rick Wagoner handled the company pretty poorly he still collected more than $10 mill. in compensation during his time at GM.

All of this is irrelevant to the point that srw3 raised about the "sanctity of contracts".

Posted by: JPRS | April 13, 2010 2:26 PM | Report abuse

@vb: does the owner of the company not sustain costs in hiring and training a new employee?

What is your point? Training a new employee doesn't usually take 7 years and that is not a penalty for breaking the contract like 7 years of bad credit for breaking a mortgage contract. Who knows, the employer might hire someone who already has the skills. The point is there is no externally imposed sanction for breaking the contract with the employee.

Don't tell me you think that disgruntled union employees always give 100% do you? You're not that naive.

Not sure what your point is here. US workers are on average the most productive workforce in the industrialized world.

"They also get more done per hour than everyone but the Norwegians, according to a U.N. report released Monday, which said the United States “leads the world in labor productivity.”" http://www.msnbc.msn.com/id/20572828/


"you can bet its less time that they're spending on their lesson plans."

Here is an assumption with absolutely no factual basis presented. You were the one to chastise me for assuming things about your employees' compensation without knowing the whole story.

You can beat on teachers all you want, but if you haven't been a taught in a public school classroom for a couple of years, you don't have no idea what you are talking about.

Posted by: srw3 | April 13, 2010 2:36 PM | Report abuse

JPRS,

but the point is that the NJ teachers union has gone amuck. They are a poster child for a union having too much power. When you have teachers spending their "free time" (again i'm assuming its free time) bashing the govenor for his attempt at fiscal sanity for the state and you have their union leadership "joking" about the govenor's death like above you've gone way too far.

http://www.nj.com/news/index.ssf/2010/04/bergen_county_teachers_union_m.html

Posted by: visionbrkr | April 13, 2010 2:40 PM | Report abuse

srw3,

did you go to the link? Do you see how expansive it is? you're going to try to convince me that these "teachers" have this much free time? You've got people from NJEA posting on there during regular working hours. Is that what they're being paid to do?

My kids go to public schools so I see it very closely. Just like in any other industry some are very good and some are very bad and many are in the middle. But the point is when you institute a union in there it insulates the bad members (tenure). Exactly how is that a good thing?

Posted by: visionbrkr | April 13, 2010 2:57 PM | Report abuse

@vb: you're going to try to convince me that these "teachers" have this much free time?

How do you know when this page was put together? Teachers do get breaks during the day and some might be posting at that time. Until you know what a particular teacher's schedule is and how often they work off the clock grading papers and preparing for classes (even administrators agree that break periods during the day are not enough time to do all of the grading and planning a teacher has to do), don't lecture me about how awful NJ teachers are. I have no experience of them, but as a former teacher, I know the work environment. Have you sat in on any of your child's classes or are you a parent who only sees the teacher 2x a year for conferences?

Posted by: srw3 | April 13, 2010 3:31 PM | Report abuse

visionbrkr,

The purpose of the original post is to highlight the existence of a double-standard with respect to the "sanctity of contracts" argument.

Of course the reality is always that a contract can be renegotiated if broader circumstances change. This should be true regardless of whether a person is a business executive or a union member.

With respect to the New Jersey Teachers Union "run amok" line of argument, this is a separate topic.

Whether the teachers are compensated at a reasonable level is a separate question from whether or not the contract's "sacredness" is respected by demanding concessions mid-contract.

I have no opinion on whether or not the compensation levels are fair, or reasonable. With respect to the "sanctity" argument, the very existence of negotiations highlights that fact that contracts can be subject to revisions. The same principle should be applied in other industries and at other pay grades.

Out of curiosity, is Gov. Christie going to take a pay and benefit cut as part of the budget reduction measures?

I know during his time as a US Attorney he wasn't exactly a paradigm of fiscal austerity.

http://www.citizensforethics.org/taxonomy/term/1675

He would probably have more credibility if he had a stronger track record in his own personal use of public funds.

Posted by: JPRS | April 13, 2010 3:42 PM | Report abuse

@vb: But the point is when you institute a union in there it insulates the bad members (tenure). Exactly how is that a good thing?

Firing teachers for no cause or because they or because an influential parent doesn't like them can happen if there were no teacher's unions. How is that a good thing. Actually, for the first 3-5 years before tenure, teachers can be fired for no reason. Clearly there has to be a balance between worker's rights and management prerogatives. If NJ is tilted too far toward teachers, it can be rebalanced without simply destroying the union.

Posted by: srw3 | April 13, 2010 3:44 PM | Report abuse

srw3,

on facebook there are time stamps that show when people go on and post. Many are early morning but there are plenty that are during what is considered normal school hours.

I don't think I ever said they were "awful". And as a former teacher I can see you are biased as I expect you should be. I go to the conferences and I'm also there several times a year in a parent/reading program that our local school has. I also help my kids with their homework every night and help them study for tests, exams etc.

I understand its not the easiest place to work, especially nowadays but I also understand that teachers get benefits that others in the private sector couldn't dream of. Three months off a year. Sick days that accumulate forever unlike the private sector and at least in our district teachers come and go on maternity all the time.

Now I'm not saying that they shouldn't be allowed to do that and they should have every right to have a family but in the private sector jobs aren't waiting for them (at least with smaller companies where FMLA does not apply).


Some of these teachers posting on that site don't realize how good they have it and feel like being asked to pay a small pittance towards their benefits is too much to ask. its all a little disgusting if you ask me.

Posted by: visionbrkr | April 13, 2010 3:56 PM | Report abuse

JPRS,

I agree wholeheartedly that if Christie is going to preach to unions he should back it up first himself.

I also agree that they should (and i expect they will) reinstate the tax on income over $400k in NJ that was not in NJ's budget.

Everyone should pay.

Posted by: visionbrkr | April 13, 2010 3:59 PM | Report abuse

visionbrkr,

It's worth noting that the union Facebook page doesn't indicate who is doing the updates. You could have parents posting, you could have union members posting (who aren't teachers), and sure you could have teachers posting too.

Given that there are probably tens of thousands of teachers in the state who are members of the union, I would expect to see a lot more traffic if teachers spent their whole day posting to the union Facebook page. Clearly the overwhelming majority of members spend most of their time doing other activities.

Posted by: JPRS | April 13, 2010 4:06 PM | Report abuse

JPRS,

I agree wholeheartedly that if Christie is going to preach to unions he should back it up first himself.

I also agree that they should (and i expect they will) reinstate the tax on income over $400k in NJ that was not in NJ's budget.

Everyone should pay.

Posted by: visionbrkr

////////////////////////////////

Well, I guess that means we agree. Sounds pretty reasonable to me.

Posted by: JPRS | April 13, 2010 4:10 PM | Report abuse

srw3,

as i've also said before i'm not anti-teacher and i think many of the reforms our state needs should be centered on getting rid of all the excess administration that we have. As I've used this example before I will again now but my child's elementary school has not only their principal that's paid $200k per year but a curriculum administrator who is paid nearly that. Sorry but the school isn't that big. Maybe i'm being overly pessimistic. Maybe it'd help to know what the principal does to earn his $200k per year. Any time i go into school though (at least 1-2x per month) he seems to just be walking around the school not doing much.

JPRS,

there are 65k+ "friends" to that page. Yes it could be parents and administrators too but i know many teachers who live in my neighborhood who are downright irate that they're being told they may need to have a wage freeze to save jobs or pay 1.5% towards benefits. Again whoever negotiated that (is it even negotiated? who does the negotiation???) deal they're getting needs to stop learning from Paulson, Geithner and those that negotiated the AIG deal.

I've been involved in negotiations before and they never go as smoothly as these two seemed although not being privy to either I admittedly may be misinformed although it would help if the general public had some semblance of knowledge of it.

Just a little story too. about 10 years ago a client of mine wanted me to speak to their school board on their benefits. It was a small district and the client of mine asked me to propose a plan that had a copay of $20 as opposed to their $5 copay because the savings was astronimcal as insurers purposefully slant their rates towards making higher copays beneficial. It was as if I was torturing them. Needless to say they stayed with their $5 copay.

Posted by: visionbrkr | April 13, 2010 4:44 PM | Report abuse

@vb: benefits private sector couldn't dream of.

Only now. Good union manufacturing jobs had these benefits until their jobs were shipped overseas. No teacher I ever knew took the summer off. All either taught summer school or worked somewhere else to make up for their lousy take home pay.

"Some of these teachers posting on that site don't realize how good they have it and feel like being asked to pay a small pittance towards their benefits is too much to ask. its all a little disgusting if you ask me."

Remember, union members gave up salary for those good benefits. Why should they give them away for nothing. Is it disgusting to you to see other people hold their employers to the agreements that they made or is it just teachers that you feel have a free ride?

Posted by: srw3 | April 13, 2010 5:06 PM | Report abuse

@vb: Maybe it'd help to know what the principal does to earn his $200k per year.

I would note that principals are not usually part of the teachers union. NJ may be an exception....

Posted by: srw3 | April 13, 2010 5:10 PM | Report abuse

srw3,

what you don't seem to get is that I don't care if principals are part of unions or not. Its not the unions I'm against its the pay that's out of whack whether that's within a union setting sheltering them or outside. if i were to see that its warranted then fine.

You need to get out of the 70's. No teachers (at least around here) are paid lousy. All the ones around me make more than private sector jobs so many of the ones around here don't bother to work during the summer. I'm sure some do but none of the ones I know do.


As far as "holding people to agreements" I know plenty of private sector jobs where whole companies from ownership down took substantial pay cuts (20-40%) and jobs that were lost. All while public sector kept humming at 7% increases.

You've got no right to whine about "lousy pay" but still keep those 7% increases when the private sector is fluctuating like the public sector never sees.

Posted by: visionbrkr | April 13, 2010 8:47 PM | Report abuse

Srw3,

This may be a late response, but I hardly think we'll be back to the days of the robber barrons without unions.

Employees are always free to leave their job whenever they feel like it. If employers attempt to abuse people either via dangerous working conditions or gross underpayment, they end up losing good productive workers to competitors who promptly eat their lunch.

Unions are overpaid relative to how much they produce. Provided workers have other options, workers will be paid roughly the value of what they produce (and I say roughly here only because its hard to determine 'precisely' how much value a worker generates).

Now unions can be legitimately beneficial - I am sympathetic to your claim that unions can force employers to offer safer working conditions, whereas an individual employee or two might have difficulty obtaining the same objective. With no safety net, I think there is also legitimate concern about the bargaining position of workers with low incomes and little to no wealth - the worker's family has to eat after all. However, in practice unions in nearly every case seem to overstep their bounds. I'd much rather have a guaranteed income program, and perhaps a federal requirement that worker's dependents be fully compensated for the death of workers on the job due to normal work activities (and I believe the economic value of a human life is estimated to be north of $5 million), given that the unions often go too far.

Posted by: justin84 | April 14, 2010 9:42 AM | Report abuse

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