Big Shitpile
mikethemadbiologist | September 17, 2010I've decried before the lack of natural history in economics, and I'm thinking Mark Thoma, with whom I usually agree, seems to be doing just that. Thoma on the ongoing recession:
There are different types of recessions, and this one can be termed "a balance sheet" recession. It had a big impact not just on bank balance sheets, but on household (and, for that matter firm) balance sheets as well. Households were particularly hard hit due to declines in stock prices and declines in the value of housing. These losses were large, they upset plans for things such as retirement, and households…
mikethemadbiologist | August 27, 2010While conservatives still blather on about 'judicial activism' whenever a federal judge decides that they've gone too far in cramming their theopolitical crap down our throats, the ongoing housing crisis*, aka Big Shitpile, could result in some honest-to-Intelligent Designer judicial activism. How?
I've discussed previously how the poor, or even non-existent, paper trail for many foreclosed mortgages that were bundled together and then traded multiple times has led to judges preventing foreclosure proceedings to continue. There are legitimate legal grounds for doing so:
The issues in this…
mikethemadbiologist | August 23, 2010Meet your new Treasury Secretary
My guiding political principle is "people have to like this crap." That is, if a policy makes peoples' lives worse, then it's a shitty policy*. More about that in a bit.
Last week, a bunch of bloggers went to visit the Treasury Department, and one of the topics for discussion was the Home Affordable Modification Program ('HAMP'). HAMP has been accused of doing little to help people from avoiding foreclosure, and, instead, has only prolonged their attempt to meet a (doomed to fail) series of payments (this is derisively called "extend and pretend"). In…
mikethemadbiologist | July 13, 2010Over the weekend, I discussed how the wealthy are far more likely to walk away from an underwater mortgage (when the mortgage payments will cost more than the value of the property) than the non-wealthy. Yves Smith makes a good observation (italics mine):
Another message here is that high income borrowers aren't taking the Freddie/Fannie/bank bluster about strategic defaults seriously. Recall that the latest threat was that they would pursue deficiency judgments, as in sue borrowers who defaulted where the proceeds from the sale of the home, net of expenses, did not cover the mortgage debt…
mikethemadbiologist | July 10, 2010I've mentioned before how the decision to walk away from a mortgage that costs more than your house is worth ('strategic default') should be based on how that decision affects you financially (and, of course, if you want to stay in the house anyway). In an environment where loans were approved such that there could be a strong incentive to walk away, there's no ethical issue--caveat mutuor. So I find this NY Times report very interesting:
Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds…
mikethemadbiologist | June 30, 2010One of the really difficult things for me to comprehend is why the idea of 'Fiscal Austerity' is so popular among politicians, especially too many Democratic ones, when Fiscal Austerity will lead to high unemployment. The null hypothesis of "people are fucking morons", while personally appealing, just doesn't seem to have explanatory power. However, Digby, as she is wont to do, clarifies things tremendously:
I have thought from the beginning of the crisis that this [the erroneous belief that budget cuts will create jobs] was a problem. I could tell from some conversations I was having that…
mikethemadbiologist | June 16, 2010Yes, you read the title correctly--I'll get to that in a bit. Nicholas Wade's article about the Human Genome Project (HGP), "A Decade Later, Genetic Map Yields Few New Cures" has been getting a lot of play. Thankfully, ScienceBlogling Orac summed up perfectly my thoughts about both the science and hype surrounding the HGP, so I don't have to. But this post by Mike Mandel has been getting some play:
My nomination for the most significant economic event of the past decade: The failure of the Human Genome Project to thus far deliver medically significant results.
I dunno: the collapse of…
mikethemadbiologist | June 7, 2010Yet another sorry chapter in the banking crisis. Remember: we need banks and bankers, but why we kept these banks and these bankers in business still perplexes me. Now, in an attempt to retain faux integrity of their balance sheets, banks are refusing their contractual obligations to buy back certain loans they sold to Fannie and Freddie Mac (and with Fannie and Freddie essentially owned by you and me, guess who will get stuck with the bill?):
Among the more glaring bookkeeping fictions on big banks' balance sheets today are the values they assign to all of the bounteous second mortgage…
mikethemadbiologist | June 3, 2010...Apparently, economist Christine Romer thinks so too (italics mine):
...hundreds of thousands of public school teachers are likely to be laid off over the next few months. As many as one out of every 15 teachers could receive a pink slip this summer, the White House Council of Economic Advisers estimates. These layoffs would be spread throughout the country -- in urban, rural and suburban districts.
Such layoffs are terrible for teachers, for communities and, most important, for students. For the families directly affected, layoffs mean not only lost wages but often lost homes and postponed…
mikethemadbiologist | May 6, 2010By way of Digby, we come across Atrios' excellent summary of the TARP program:
It's a little weird that reporters are hesitant to clearly spell out what happened. Basically the Fed printed a huge amount of money. Some of that money they used to do what TARP was originally supposed to do, buy up Big Shitpile at inflated prices. Some of that money they lent to banks at basically 0 interest. Of course there were plenty of other things they could have done with 2 trillion bucks, if preserving the executive compensation at megabanks wasn't thought to be crucial for the survival of the economy.…
mikethemadbiologist | March 6, 2010One of the infuriating things about the collapse of Big Shitpile is that there hasn't seemed to be much you or I can do about it (and that wanker Bernanke is useless). Until now. Move Your Money has developed a nice online tool to find local banks and credit unions.
Recently, after using their tool, I moved much of my money to a local bank, Wainwright Bank. When I told them that I wanted to open a savings account, they started to tell me about ten dollar minimum deposits, as part of Wainwright's mission is to serve who often don't have access to banking services. Maybe it just was the…
mikethemadbiologist | February 13, 2010One thing about Big Shitpile that seems to have gone under the radar is the potential for--and, increasingly, the reality of--debtor revolt. That is, people who owe more than their home is worth refuse to pay without a renegotiated mortgage. Sean Broderick thinks that "a debtor's revolt is going to be one of the defining trends for 2010", and recounts this episode:
Two years later, Adam's $450,000 Loxahatchee House was worth only $189,000. And he couldn't find a renter for his home in Lake Worth. He tried working with the bank (one bank had given him mortgages on both properties), but they…
mikethemadbiologist | February 7, 2010If you're looking for a good primer on Big Shitpile and other recent economic events, I highly recommend Peter Goodman's Past Due: The End of Easy Money and the Renewal of the American Economy. It's well written, and does what many other books about the recent economic collapse fail to do: puts it into a larger context. But this small excerpt from Past Due hits the nail on the head as to what our problem is:
Washington has grown accustomed to muddy compromises that can be spun into clear-cut victories by both parties, as their leaders appear on Sunday television talk shows to argue over…
mikethemadbiologist | January 29, 2010Sure, there were some nice parts in Obama's State of the Union speech. But this part is the equivalent of flat-eartherism and creationism (italics mine):
Starting in 2011, we are prepared to freeze government spending for three years. Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will. Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don't. And if I have to enforce this discipline by veto, I will.
We will continue to go through…
mikethemadbiologist | January 20, 2010File this under caveat mutuor. Henry Blodget points out the obvious in his retort to those who claim people have a moral obligation to remain in mortgages that are 'underwater' (paying more than the house is worth)--it's a business contract. Blodget (italics mine):
Importantly, the reason is not that "Wall Street deserves it" or "We've got to teach the banks a lesson" or any of the other bogus "retribution" logic being thrown around. The reason is that you and your lender engaged in an arms-length transaction in which you balanced your competing interests and spelled out your agreement and…
mikethemadbiologist | January 10, 2010I've made this point before--if your mortgage is underwater, you should consider a 'strategic default' (which is what it would be called if you were a business), and, unless you were speculating, it's not unethical to do so. First, you didn't force the lender to give you the money (and to the extent that there was fraud, it was usually the lender who enabled it--ninja loans, for instance). Second, since housing loans are traded as commodities, there is no community bond: you're not hurting the ability of a local bank to make loans to your community (or driving up the borrowing costs of…
mikethemadbiologist | December 29, 2009With Big Shitpile rolling on, there's been a lot of discussion about the ethics of defaulting on a home mortgage. Several people have commented on the hypocrisy of denigrating homeowners for doing the same thing that businesses do, without any moral qualms, so I won't say any more about that here. What I do find odd is the inappropriate personalization of who holds housing loans. This is a typical attitude:
Tom Sobelman, whose family of four lives across the street from Ms. Richey, at 3127 Club Rancho Drive, sees mortgages as a moral as well as financial obligation. He's still paying the…
mikethemadbiologist | October 26, 2009That's a great phrase that the NY Times headlined Gretchen Morgensen's article about judges who are backing borrowers when the mortgage documentation is non-existent (and you heard it first from the Mad Biologist). I know I'm beating this to death (a bit, anyway), but the potential for billions, many billions of dollars of housing loans to disappear is gaining steam. Morgensen (italics mine):
One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn't proved its claim to a delinquent borrower's home…
mikethemadbiologist | October 24, 2009...Big Shitpile is looking more and more shitty. Last week, I wrote about how the dissolution of the bond between lenders and borrowers could lead to a home owner debtors' revolt. One of the key issues is that, when mortgages are bundled and sold to other parties, such as investment banks, the mortgage assignments are often made illegally--or perhaps more accurately, extralegally, since they are often not registered with the appropriate government authorities.
This makes a recent decision from the Massachusetts Land Court very interesting:
The blank mortgage assignments they possessed…
mikethemadbiologist | October 17, 2009One problem stemming from the collapse of housing prices is that many households, even if they can still make their overpriced mortgages, are going to be paying far more for their houses than they should. That means less money for other things, from the frivolous to the important. So I've always wondered if we'll ever get a flood of walkaways--people who let the bank foreclose on the house. I realize some people will want to stay in their homes--maybe they don't want to pull their kids out of a school they like, or it's just the wrong time to think about a move. But for many, the rational…