Volatility

December 23, 2009

Toxic

 

Our education in the complete moral failure of the system continues. Part of my program is to describe the ways in which the big banks and their government flunkies are not citizens, are not moral actors, are not members of a community. They are clinical sociopaths.
 
Today I’ll discuss bank walkaways and two phony government programs meant to pretend the Obama administration is acting in the public interest but is really acting contrary to it.
 
As we would expect, all the coverage in the mainstream media centers on individuals walking away from their mortgages. But a far more destructive practice is where the banks themselves, after foreclosing on families who are the victims either of the bank-generated downturn or of predatory lending in the first place, then turn around and abandon the property like a totalled, uninsured car.
 
They do this where the local prices are so depressed that the costs of maintaining and reselling the property would be greater than the price they could get. Sometimes they don’t even bother to foreclose, saving themselves that cost as well.
 
These abandoned properties become the “toxic titles”.
 

A mortgage holder usually walks away from a property when it decides the house has such little value that it’s not worth the money and effort required to keep it in good shape or even to foreclose on it—a common occurrence in neighborhoods already scarred by foreclosures. The borrower is gone, however, often unaware the house hasn’t been taken, Lind said. A property might sit vacant for months or even years, an easy target for vandals who strip it of plumbing fixtures, wiring, copper, or anything else of value.
Walkaways wind up with “toxic titles,’’ Lind says. The mortgage company retains a lien, or a charge, on the house, but the borrower still is considered the owner. The property sits in limbo, with the mortgage usually exceeding what it would sell for, because of its decline. If the city has to tear it down, it adds its own $8,000 to $10,000 demolition lien. Not surprisingly, potential buyers aren’t exactly lining up. Non-profit neighborhood groups that could fix up the property face long and expensive legal battles to claim it.

 
Somewhere from five to ten thousand houses in Buffalo have been abandoned by the banks. There have been greater than 14000 foreclosures in the Cleveland area since 2007, an uncertain number of these toxic. Many of them seem to have no owner at all, so far as can be ascertained from public records.
 
This systematic irresponsibility causes the further blighting of already distressed neighborhoods. The very banks being bailed out by the taxpayers turn around and assault those same taxpayers by refusing to be held accountable for this “property” they usually make such a big deal about owning.
 
(Once again we see the psychopathic total-rights-zero-responsibility ideology which has destroyed this country.)
 
“They’re just dumping their trash in the Midwest”, says Cleveland law professor Kermit Lind (who coined the term “toxic title”). The problem is expected to get much worse over the next few years, as the mortgage meltdown continues. Lind likens it to environmental racism. It is in fact a from of pollution, another negaitve externality, another socialized cost after all the profits were hoovered up privately.
 
This attempt to evade accountability is another feature of the MERS system I wrote about last week. The point of the nameless, faceless conveyor belt mortgage chop shop is to let only the cash through but never the sunlight.
 
The idea is for the bank to be able to walk away and disclaim all responsibility and even knowledge of a toxic property. It’s supposed to be as if the earth opened up and swallowed it whole along with all memory or legal record of it.
 
They want this enshrined contradiction, this all-rights/no-responsibilities whack-a-mole. They want the court to take their word for their “ownership” when they do want to foreclose and take possession, even if they can’t produce the note. But where they want to walk away, they tell the court they own nothing.
 
On the principle that we’re entitled to deal with someone on his own terms, I’d say we should demand proof of their alleged right wherever they want to exercise a right, while imposing responsibility wherever they want to walk away, based on just a reasonable supposition of that responsibility.
 
Meanwhile in Buffalo, Cleveland, and elsewhere some decent public servants are fighting back. The basic tactic is for the court to place a lien on the abandoned property, and then demand satisfaction of that lien wherever that bank wants something in any other case in the jurisdiction. The bank has no choice but to take responsibility for these properties or else give up on doing business in the city. Cleveland has also sued 21 banks for demolition costs and the additional policing costs entailed by abandoned and unmaintained properties.
 
They’d have a right to go further. Simply condemn, demolish, and make the bill part of the lien.
 
A truly creative, constructive policy would be to set up rent-to-own programs with these now city-owned houses. Or perhaps encourage squatting on a stewardship basis, with the stewardship as banked capital toward renter and eventual ownership rights.
 
This kind of policy would give people a real stake in maintaining and rebuilding the community. (Of course the great danger is that they’d entice poor people into such community work and then, once some market value had been restored to the neighborhood, sell it out from under them. So a political movement based on such ideas would have to emphasize a legal framework to prevent that.)
 
The clear message for now, even as we build such movements for ourselves, is that the big banks and their political enablers have unilaterally walked away from their civic obligations.
 
Let’s be clear. If you as the homeowner can’t afford the mortgage payments, and especially when they give you a foreclosure notice, you both can (and according to the police must) clear out, free and clear. You no longer have any moral or legal connection to the lot. The bank has an absolute obligation. As for its being underwater, didn’t it price in the risk of that in the first place?
 
They don’t believe they owe the community or the individual anything, so neither the community nor the individual owe them anything.
 
Responsibilities precede rights.
 
And what’s the administration’s role in this whole farce? The main ploy has been the HAMP scam. (Hampscam? Is that as catchy as Abscam? Do people still remember Abscam? Seems pretty tame by today’s standards.)
 
The propaganda of the Home Affordable Mortgage Program (HAMP) was that distressed borrowers could apply for temporary mortgage modifications which could then be converted into permanent mods. It was supposed to help 3-4 million mortgage holders.
 
As per standard corporatist practice, the program was voluntary but included lots of supposed incentives for the banks to participate.
 
So what’s the result been? More than 750000 trial mods have been initiated, but only 31000 have been made permanent. Information is scarce because transparency was also made voluntary, and participants have simply gone for secrecy.
 
Meanwhile millions who dream of staying in their homes have applied for the program and continue to pay premiums they can’t afford based on the implicit promise that they’ll get a permanent mod. The administration and the banks keep promising this in theory, yet keep coming up with excuses for why the permanency conversion rate is so low.
 
The banks and government flacks keep claiming that the applicants don’t send in the requisite paperwork, or that it somehow got “lost” in the process, but housing activists think this is a campaign of intentional obstruction.
 
Then there are the many cases where the bank explicitly lies, notifying the applicant of his pending permanentization, only to foreclose anyway.
 
Often the foreclosure comes as a complete and terrifying surprise, since the Treasury Department itself wrote into the program application that the applicant waives all notification rights. Once you’re in the program, the bank can foreclose immediately, at will, not matter what lies it’s told you.
 
So we have the anemic numbers, the endless obstructionism, the clear bad faith on the administration’s part in how the thing was conceived in the first place, the banks’ being allowed to lie with impunity.
 
We have the way it was conceived as a purely voluntary program, with special incentives for participation. Never mind that the participants are the insolvent, bailed out banks we the people now OWN, such that they no longer have any right to do anything other than what’s in the public interest.
 
We have the way the politically embarrassed Obama is now reduced to begging the banks to do some little bit to help make him not look like such a prostituted wimp. (And the fact that the banksters can’t help but show their absolute contempt for him, not even bothering to show up for his snivelling little lecture.)
 
When you put all this together, it’s clear that the HAMP is nothing but a scam. With active administration abetting, through the device of a temporary mod, the goal is to induce the doomed borrower to make more payments with the false implicit promise (and often the explicit fraudulent lie) that he’ll get a permanent mod.
 
(To confirm this, with administration support the Senate just voted down for the second time allowing bankruptcy judges to force cramdowns on primary mortgages. Everyone agrees this is the most effective shorter term measure, and anyone who wanted to help distressed Americans would support it. So we see where the government’s at.)
 
For one more piece of the puzzle, we can look at Obama’s alleged plan to use TARP money to support lending to small businesses.
 
The idea, announced with much fanfare in October, was to use the TARP to assist community banks and credit unions. These are the real lending institutions which create value and help generate real economic activity and jobs. Of course nowadays they’re doing poorly as Main Street gets clobbered.
 
And as we can see, this is a feature and not a bug. That’s because TARP administrators are imposing far more rigorous “viability” standards on community banks than they ever have on the big banks. While the insolvent big banks were simply dogmatically declared from the start to be solvent and worthy of bailouts, and while propaganda like the “stress tests” were used to further propagate this solvency lie, the community banks are now being held to severe standards in excess of all reason. As a result, only 26 of the 64 applicants have been approved.
 
By the same standards, none of the big banks could ever have qualified. We could never have had a TARP in the first place.
 
Which goes to demonstrate why we did have the TARP and the whole bailout in the first place. It was never to help Main Street, but rather to help loot it. It was never to save Wall Street to save Main Street, but to save Wall Street to enslave Main Street. And so it continues today.
 
All this proves what we must keep teaching for as long as the system exists: America never needed the bailout. Main Street should have been directly bolstered, while the Wall Street parasite was left to die.
 
Save-Wall-Street-to-save-Main-Street was the same old trickle-down lie, the Big Lie, and the Shock Doctrine version of the lie.
 
Government bolstering could have gone directly to community banks, credit unions, small business, decentralization and relocalization groups, and individuals.
 
But obviously this would run counter to the power interests of the system, and that’s why they lied and did the opposite.  

6 Comments

  1. Save Wall Street to save Main Street indeed. As a result of brainwashing, somnambulance and, I imagine, physical and mental exhaustion, the U.S. public have not only been bamboozled-as my primary piece of evidence I submit the election of Barack Obama,who, despite his pallor, personal style and manner of communication is a marvelous facsimile of his predecessor- but seem to have insufficient wherewithal to rise up
    against the predations of the kleptocracy and their minions in government and the press.

    The Blogosphere truly is the only place where a breath of fresh air can be had. I suspect it too will be under attack shortly.

    Here’s a question for you Russ, in your view, what will the next stage of crisis involve in the ongoing evolution of economic and social disintegration? Also when will it erupt?

    Comment by Edwardo — December 23, 2009 @ 10:07 pm

  2. We agree that the exponential debt/growth system cannot be sustained. It’s unsustainable both socioeconomically and in terms of available energy (Peak Oil). But as we’ve been seeing they’ll try to prop it up as long as possible.

    This means that for as long as the politics allow we’ll keep seeing the bubble-crash cycle, at an accelerating pace, with each bubble being limited to ever fewer participants, each crash more disastrous for more people.

    In particular, as I wrote in this post:

    https://attempter.wordpress.com/2009/06/03/timeline/

    if they can keep this phony recovery going for a few years, then we’ll almost certainly see the classical Peak Oil effect within five years (while the nominal Peak was probably July 08).

    Either way, the next crash will happen within a few years, will be far worse, will truly end the farce that America still has a “middle class” once and for all.

    At that point, the elites will have to become more overtly violent and repressive to hang on.

    I wrote about that here

    https://attempter.wordpress.com/2009/07/06/resource-fascism/

    and in several other posts.

    That doesn’t necessarily mean that there’ll be widespread political resistance on the part of the slaves; I hope so, but the evidence for saying there will be is not very good.

    But even without real political resistance it won’t be possible for the system to prop itself up without resorting to de jure fascism, so that’s what it’ll try to do.

    All the groundwork is being laid now.

    It seems the blogosphere is already under attack. Co-optation of purely political bloggers is well-advanced, and I guess the econoblogger conclave at Treasury was a first step toward attempted co-optation there as well.

    As for net neutrality, I’m frankly surprised the idea’s gotten as far as it has among politicians, given how anti-corporatist it is.

    But it already looks like resistance to the policy is growing.

    Anyway, that’s how I assess the evidence. My basic idea is to try to find people who want to organize around relocalization, resilient and locally reliant lifestyles, and politically to recognize that we can hope for nothing from the system, that it is irredeemably broken, and that we have to seek to build power at local and regional levels.

    The forces of economics, nature, and history all point toward decentralization, which is simply history returning to its regular course after the fossil fuel detour.

    The elites will not be able to sustain themselves for long, however nasty they get.

    People who want a chance to come through the fire in one piece, with dignity and humanity intact, will need to organize along the lines I suggest.

    Comment by Russ — December 24, 2009 @ 5:35 am

  3. On the blight of abandoned foreclosed properties. A simple local ordinance obligating the legal owner to maintain the property, permitting the locality to make needed repairs, charge them to the owner as a first lien, foreclose for nondischarge of repair obligations after, say, six months. You hardly need a revolution over this one.

    Given the pace of ‘government work’ and the cost including benefits, local government could become a real source of stimulus over night.

    Comment by jake chase — December 24, 2009 @ 7:53 am

  4. That’s a good way of handling it. Not too different from what they’re doing in Buffalo.

    But I also take an interest in the phenomenon of the general abrogation of property responsibilities. It sounds to me like the self-negation of the principle on the part of the power structure, and something worth telling the people about.

    Though just like on the bailout the people are ahead of the “elites” here as well. More and more they’re intuiting that if the powers that be don’t have to follow the rules they made up, neither do we.

    Thus the increasing mortgage walkaways.

    Meanwhile the liberal elite are still clucking their tongues about it.

    We don’t need a revolution over any one thing, but it’s all quite the pattern.

    Comment by Russ — December 24, 2009 @ 4:34 pm

  5. […] will try to resist bottom-up claims of authority over large tracts of land. But the system has abdicated. If we’re to save ourselves, we mustn’t worry about the niceties and forms that were […]

    Pingback by Holiday Wish « Volatility — December 25, 2009 @ 8:08 am

  6. […] mind (and read the econoblogs) knew this a long time ago. If I may toot my own horn for a moment, here’s me calling the HAMP a scam on exactly these grounds last December. There were plenty of others too. As with everything else, none of this is ever a secret nor does […]

    Pingback by Liberal HAMP-Smokers Kicking the Habit? « Volatility — August 23, 2010 @ 9:56 am


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