Volatility

October 22, 2010

Jubilate! Mortgages and Property

 

The Street Enters the House - Umberto Boccioni

The implications of the Land Scandal keep rippling out to ever more distant shores of political possibility. By now it has sunk into the public consciousness: Your alleged bank may not have the note on your mortgage. It may only be posing as the real owner of your house. It may have no legal right, even according to its own bank-friendly laws, to foreclose if you stop paying the mortgage. Show Me the Note!
 
People understand that the reason they’re losing their homes is not because of any moral failing on their own part, but because the banks have systematically destroyed America’s jobs through their program of forced globalization, outsourcing, offshoring, downsizing, and consolidation. The main goal of all of these, other than direct looting on the part of banksters, was to destroy all decent American jobs. At the same time the banks undermined the economy and all social protections to the point that losing one’s job or having a medical emergency is likely to trigger a personal mortgage crisis. (As is often pointed out, only in the banksters’ America does losing one’s job mean losing one’s health insurance. This system of a double-hit was intentionally set up by the corporatists as a form of socioeconomic terrorism. It’s meant to quash dissent among the work force.)
 
The people understand that the same banks who presided over the massive bubble propaganda then willfully burst that bubble, dumping overboard and underwater many of the housedebtors they induced into extravagant mortgages they can now no longer afford, on houses worth far less than they borrowed. These bloated loans were all predatory loans. The bubble was a fabrication, the bloated housing prices were a fabrication, the loans and municipal taxes and bonding based upon them were fabrications. Every lender and every government was guilty of massive, willful fraud. Now that the bubble has burst, prices are seeking their real economic level. So by definition anyone who’s underwater is the victim of lending fraud.
 
The fraud extended to the federal government. The only priorities of both kleptocratic parties are to reflate the bubble, prop up the zombie banks, and help them continue looting. This has forced the government into all sorts of policy contortions, trying to navigate the contradictions of a situation where everyone wants to keep prices up but also wants to foreclose, which would bring more housing stock onto the already grossly oversupplied market. (And we’re learning about the conflicts of interest between the servicers, who have an incentive to foreclose, and the MBS investors who do not, since the phony “value” of their toxic assets depends upon extending and pretending with everything including the mortgages.)
 
Facing these paradoxes, the administration launched its HAMP scam. The goal was to lie to distressed housedebtors, telling them if they keep paying for the time being they’ll get a permanent mod. In reality Obama never intended to give anyone mods, but only to string people along, forestalling any ideas they were having about walking away, inducing a few more payments out of them, before the servicer lowered the boom once and for all.
 
If there were ever any doubt about this, the fact that Obama, as per his normal corporatist procedure, put the servicers themselves in charge of the mod application process, in direct contradiction of their own interest, should dispel it. That proved right from the start what the real plan was.
 
The people are learning how the banks, in their rush to securitize these fraudulent loans, separated the note from the lien and didn’t convey title along the Rube Goldberg chain of sponsors and depositors and trustees, thereby rendering the trusts themselves illegal, the MBS as nothing but unsecured loans now of zero value (so the banks we already knew were insolvent are now known to be in far worse shape than previously thought), the liens as phony “liens” that are also fraudulently referring to unsecured loans, and the houses themselves in legal limbo.
 
We know how once people started to wise up the banks simply set up Taylorist conveyor belts to churn out fraudulent affidavits. When judges started getting suspicious of all these lost-note affidavits, the fraud progressed to actual fabrication of documents. One company presented a price list.
 
We know that the banks are worthless, useless, criminal, parasitic, insolvent, obnoxious, and stupid. We know they have no right to exist at all, that every cent they’ve stolen (including the “bonuses”) has to be taken back in restitution, and that what’s supposed to be our government is really an illegitimate rogue kleptocracy which has committed itself not only to refusing to put a stop to the crimes of the banksters, but to helping them continue these crimes. The core policy of Bailout America is to steal taxpayer money and hand it over to the banks, in order to prop up their insolvency and enable them to continue gambling and looting. This is the essence of what this government does, and all other policy is defined by it.
 
We the people know all this, and when it comes literally to our homes we’re confronted with it in the starkest, most questionable form, and it is indeed causing us to start to ask some hard questions.
 
The three questions of the relationship of the banks and the land are these:
 
1. Does your particular bank own your particular mortgage? Or is it just lying about that?
 
2. Should banks – parasitic, insolvent, criminal, and since the Bailout the property of the people – be allowed or considered to own land at all? Isn’t this illegitimate on its face?
 
3. Does the very concept of unproductive ownership of land make any sense? Shouldn’t that be done away with as a counterproductive, immoral practice which only breeds the kind of criminal parasitism which so afflicts us today? Weren’t the “American Dream” and the “ownership society” nothing but scams to cover up bank looting? (Let’s recall how “ownership society” was the Bush slogan for his big push to privatize Social Security.)
 
I know that I’m still an outlier in asking #3. But it seems that the banksters have gratuitously, out of sheer idiotic greed, caused #1 to become a question in the first place, perhaps the central political question of the day. And having voluntarily, in an unforced error put #1 in play, they’ve reinforced the still-small but existing trend toward people starting to ask #2. And if #2 comes widely into play, #3 logically follows.
 
Just as the pro-bank scum try to keep the debtor-bashing propaganda going, but with less and less success, so they also keep saying, “even if the bank can’t produce the note, you still owe the debt.”
 
Here’s a typical example I found funny:
 

Joseph R. Mason, a finance professor who holds the Louisiana Bankers Association chair at Louisiana State University, said that concerns about proper foreclosure documentation were overblown. At the end of the day, he said, even if the banks botched the paperwork, homeowners who didn’t make their mortgage payments still needed to be held accountable.

“You borrowed money,” he said. “You are obligated to repay it.”

 
(I think it’s funny that LSU has a “Louisiana Bankers Association chair”. Actually I appreciate the honesty of that. Most of corporate academia is more deceptive about its prostitution.)
 
I keep asking the same question in response to this and never get an answer. Assuming I granted that “you are obligated to repay” a debt like this, to whom would you owe it?
 
The banks are criminal organizations. Morally no one should feel the need to owe them anything. Legally there’s also no obligation to pay off a “contract”, written by a loanshark, based on fraud. Granted, the disposition of such a legal claim would depend on how bank-friendly the judge was, but we’ve already seen judges willing to follow the spirit and letter of the law here.
 
Similarly, if we think it’s the government, as owner of many of the mortgages through the GSEs, as well as the real owner of the banks themselves, who owns the debt, the answer has to be that this is not the people’s government but a rogue criminal organization serving really as the banks’ flunkey and thug even though it’s actually their owner. So paying the government would be similarly immoral.
 
No, I think that if the debt exists, its an orphan debt owed to no one in particular, and therefore payable to no one in particular, which is as good as saying it doesn’t exist.
 
To put it another way: While the debt is not owed to the government, it is owed to the people. And since there’s no direct way to pay it to the people, the right way to discharge it is to stop paying the banks, and stay in the house. That’s the way one practices citizenship under these bank-created conditions. The good citizen resists the banks in any way possible. This is the most direct way of striking at them. Refusal to pay the fraudulent debt not owed to the banks is the way to pay the true debt we owe to ourselves and to one another as citizens.
 
I’m not the only one thinking this way. Read these excellent pieces on “the coming middle class anarchy”. Here’s just one of the snowballing anecdotes establishing how the words, Show Me the Note, strike terror in the hearts of the banksters. This is something for which their goon government has no fix. Not if a critical mass of people find the will to do it.
 
And how fortuitous! We decry how Americans are unwilling to leave the comforts of their homes to get out in the streets to protest, but here the Street has entered the House, the arena of protest has literally come home, and it’s the home itself which is at stake, in a fight to the finish with the banksters.
 
Compare today to where we were a year ago, when Brent White’s excellent paper on “strategic defaults” said you have to credibly threaten to walk away in order to get a mod. Now the debtor is in a much stronger position, if he’s willing to take advantage of it. He can credibly threaten to stop paying completely and stay in the house.
 
Nor is it just some radical bloggers saying this. These ideas are percolating closer to the mainstream. Chris Whalen is certainly no firebrand. Yet even he is saying that as the federal government continues to coddle the banks, state governors may end up calling upon people to “keep paying property taxes, stop paying the mortgage, and stay in your home”.
 
 
I don’t agree that Obama is unconscious in the sense Whalen means. I think he’s very intentionally dedicated to serving the banks and consciously doesn’t care if this dooms America to a Second Great Depression (although he probably thinks it won’t be that bad; but he certainly doesn’t care about impoverishment and suffering).
 
But I love the implication that this will have federalism ramifications, as state governments will have to take up some of the power the federal government has abdicated. Whalen thinks we’ll end up with mortgage moratoria in fifty states, but on a state-by-state basis, and implicitly in defiance of the federal government, at first.
 
So he sees power devolving in the right direction, downward, as a result of this “cancer” as he calls it. (Of course he thinks that’ll just be a temporary stopgap until “democracy does the right thing”. But we know he’s wrong about that part.)
 
Every housedebtor, distressed or not, underwater or not, should:
 
1. Stop paying the mortgage;
 
2. Stay in the house.
 
If America jubilated that way, it would be a good start toward our desperately needed Land Recourse. America needs two million small farmers. Feeding ourselves post-Peak Oil will require all land to be put into food production. The elites want to do this on the basis of feudal enslavement, but political freedom and moral integrity require that it be done on a democratic food stewardship basis. A bottom-up mortgager jubilee can be a great first step toward this.
 
And it can provide the base for a wider, greater debt jubilation. Other system debtors need to consider their positions. Here’s just one example: We have a growing legion of unemployable student debtors, burdened by massive indentures which cannot be discharged even in bankruptcy. These victims of a bank/government/university propaganda scam were swindled into taking out massive undischargeable loans for an “education” meant not to humanistically educate but to provide a credential (a Stamp) certifying that one jumped through a formal hoop and paid an exorbitant toll. This extortion payment, it was promised, would guarantee one a lucrative “career”.
 
But then those same banks intentionally crashed the economy, unilaterally reneging on the system’s side of the student debt deal. Now those college degrees are worthless. But the debt remains, for as long as the victims of this fraud choose to let it remain. Some are suing their universities for fraud, and that’s a good start.
 
But here as everywhere else where a debt to the big banks or government (where in a case like this the government simply socialized the exposure to the debt while privatizing the lender profit) exists, the real action is to strike at the senior criminal. That’s always the bankster. In the case of student debt, where the banksters’ rigged law has foreclosed even bankruptcy as an option, where the bank has placed its relationship with the debtor into the state of nature, the debtor has NO system recourse. The only option of student debtors is to form a default union and default as a bloc.
 
So there’s one example where the problem is harder to solve, but where the spirit of debt revolt can find a way. Ground zero for the spirit of jubilation, and for the general Revolt Against the Banksters, is the mortgage crisis.
 
Demand to see the note, and resolve not to pay one cent more until they show the note or give you a real modification. A real mod, meaning a principal writedown; the people in Lira’s example still look like they’re going to let Wells Fargo off too easy.
 
Better yet, demand to see the note, but resolve to stop paying period. If enough people did this, we’d break the banks over our knee. The government’s malice would sputter out in impotent fulminations. This one small step for an individual debtor would collectively be a giant leap toward taking back our country.

October 8, 2010

The Next Crash At Hand? (Mortgage System Collapse, MBS Disaster)

 

Just two years after the big crash, is this already the start of the second, terminal crash we’ve agreed is inevitable?
 
Leaving aside the obvious – looting – the whole Bailout has been predicated on propping up the balance sheets of the insolvent banks. This means artificially, by any and all means, propping up the prices of worthless toxic paper like MBS and the CDOs built on them.
 
I often explore how the mortgage conveyance scandal exposes how the banks have inadvertently abrogated their own property rights in the land, according to their own rigged law, most recently here. How this is systematic, endemic lawlessness, which must more and more suck in the courts themselves.
 
As the legitimacy crisis expands, we’re seeing how it’s metastasizing into a new, more virulent assault on those fraudulent balance sheets, on the government’s attempts to reflate the bubble on behalf of those balance sheets, and how it may strike a death blow to all the efforts of the Bailout itself.
 
Yves at Naked Capitalism explains:
 

Although the data points we have seen so far could be considered anecdotal, we have evidence that strongly suggests that major RMBS originators, the investment bank packagers, and the bank trustees failed to convey the notes (the borrower IOU, which is critical to having the legal standing to foreclose in 45 states) to the RMBS trusts starting in 2005, perhaps even earlier. And comments from industry insiders suggest this problem is pervasive.

That puts a cloud over the entire US RMBS market, the biggest asset class in the world. This paper was sold as secured; the ability to offset the cost of borrower defaults by seizing and selling his house is critical to the value of the instruments. And if no assets were conveyed to a particular trust by closing, an even uglier possibility exists: under New York law, which was elected by RMBS as governing law for the trust, it would be considered to be “unfunded”, which means it does not exist.

 
This is a double compromise of all those toxic assets at the core of the Bailout.
 
1. They were sold as loans secured by the house, but since in 45 states the lien cannot be separated from the note and still be secured by it, this may render all those mortgage loans simple unsecured loans.
 
So while I’ve emphasized how this places the land itself in legal limbo, we see how it also caves in the entire legal foundation of the financial stability of the loans and any system built upon that stability.
 
2. By violating the NY trust law, the industry standard, the MBS trusts may have nullified themselves. (Specifically, those administering them nullified them; never forget the criminal and/or negligent agency.) These MBS trusts may not exist at all.
 
Yves thinks that the GSEs will probably just make good on all the toxic crap they already bought. (What about the Fed’s holdings?) But it’s hard to see how they could politically and even legally get away with buying more of it, even though that would give mark-to-market succor to the bank balance sheets. (Banks haven’t had to use that since spring of 09, but they can still choose it, can’t they?)
 
Yves quotes MSM blogger Felix Salmon repeating some of the same rationalistic stuff we were hearing in 08 before the Bailout really got rolling in earnest. But perhaps it’ll prove true this time round. How much can the already-stretched thin Bailout do?
 

Argentina’s sovereign default has been called “the slowest trainwreck in history”, but this one might turn out to be slower, bigger, and much less fair. Millions of people have already lost their houses to lenders who didn’t have the proper paperwork, and it’s unlikely they will ever get any redress. For people who haven’t yet been foreclosed upon, however, it could now be a very long time before they lose their house.

The big-picture consequences here are by their nature unpredictable, as no one has a clue how this might all play out. But I can think of a few themes:

1. Bond investors, who have seen the value of their mortgage-backed debt rise impressively over the past 18 months, could find themselves unable to find any kind of bid at all. The paper will still be cashflowing, but those cashflows will be surrounded by enormous uncertainty, and no one’s going to want to buy them except at extremely deep discounts until the mess is cleared up.

 
So Salmon thinks the toxic garbage, which always did keep trading at some price, may literally go to zero.
 
He envisions some richer reverberations:
 

3. The time from default to foreclosure will become indefinite, and as a result there will be a significant uptick in strategic defaults, especially in states with judicial foreclosures.

4. The “shadow inventory” of houses which aren’t on the market but will eventually be sold once the bank gets around to foreclosing will grow substantially from its already-enormous level.

 
There’s no such thing as a strategic default among the non-rich. The beleaguered people should not only stop paying but wait before they physically walk away, if they’d like to stay in the house. Demand to see the note. Often this will be impossible, and it will take judicial lawlessness (or street thugs) to pry people loose.
 
The more people do this, the closer it will come to snowballing into an actual nonviolent rebellion. Land Reform from below.
 
Meanwhile that shadow inventory could prevent the kleptocracy from ever reflating the bubble.
 
Yves discusses four scenarios for how this will proceed. They boil down to:
 
1. Try to expand and intensify the Bailout tyranny, trampling the Constitution and the law even further. The unconstitutional law Congress rushed through (but Obama is apparently pocketing for now) is an example of this. As would be an expanded version of Florida’s  kangaroo courts.
 
2. Bailout-lite: Try to reduce foreclosures and prop up the system by really doing what the HAMP fraudulently pretended it was going to do. The taxpayers would of course pay for propping up the prices of principal. (This is where we get a lot of pro-bankster attitudes even from non-rich bank-haters. Many people seem to find a bailout which would also incidentally help some non-rich people more offensive than one which helps only the rich. It’s a moot point in my case since I oppose all bank bailouts. But I’d love for people who have a little but are getting screwed to recognize that the banks and the government are the enemy, not their fellow debtors.) 
 
3. Write down the principal. Do real cramdowns. This is the real reformist solution. Capitulate on the bubble (temporarily, they’d hope) in order to save rest of the structure. If I know my kleptocracy, they’ll never do this. A “real” HAMP will be just barely what they can take, if they absolutely have to.
 
4. Continue to pretend there’s no problem, for as long as possible.
 
I’ve always said that once doing nothing no longer works, I expect mostly attempts at (1), although some banks like Citi have toyed with (2).
 
Sure enough, we have this bizarre Congressional escapade. Commentators have immediately converged on the analysis that the pocket veto is kabuki for November, after which Obama will sign either the bill as is or a modified version. This will trash many provisions of the Constitution and wipe out a vast array of venerable state laws governing real estate. It’s precisely the kind of might makes right lawlessness we predicted.
 
So as with everything else, in the end this is going to be up to the people. Maybe we didn’t want this responsibility (certainly all the crises and suffering have been inflicted upon us as a criminal assault from above), but we have it nevertheless. Now we have to rise to it, to save ourselves, our families, and our human future.

September 21, 2010

The Disintegrating Mortgage Front

 

Yves Smith at Naked Capitalism continues her documentation of the mortgage system unraveling. As I’ve written about several times before, the sale and securitization system has devolved, with mortgage mills set up to evade many layers of local and state taxes while the mortgages themselves are disintegrated into a mind-boggling atom-smasher of tranches of CDOs and CDOs of CDOs. The physical note often disappears somewhere along the way. Nobody could legitimately figure out who actually owns these mortgages, in many cases. The mortgages themselves have effectively ceased to exist.
 
This reads like a satire on a land distribution system where the physical land is viewed abstractly even by those who physically squat on it and call themselves “owners” (but are really debtors). But under today’s legal system the land is really owned by the parasite finance sector.
 
But as Smith has extensively written, even according to their rigged law they’ve been abdicating this “ownership”. Legal ownership is anchored in the note. But where the note can’t be produced, as is happening more and more, no one can legitimately claim this ownership, or any right to foreclose or sell. As debtor advocates say, Always make them produce the note!
 
None of this was a problem as long as the bubble was inflating, prices were always going up and foreclosures were rare. But like with so many other things (it’s simply astounding how much lawlessness was let ride during the bubble inflation), as soon as the bubble burst everything started coming undone. There’s been an avalanche of foreclosures, which would have been hard to deal with even under circumstances where legal practice was on the up and up. But in today’s disaster there’s also the chaos of uncertain legal right for any particular actor to do anything. It seems that in many cases the foreclosing bank itself doesn’t know whether or not it actually has legal ownership and therefore any right to foreclose. Needless to say, they don’t care, and in many places the court system is looking for ways not to care as well.
 
Here’s a summation of recent developments, especially in Florida.
 
Florida is one of the states hardest hit by the collapse of the housing bubble. Everywhere underwater debtors are walking away or being foreclosed upon. It’s such a landslide that an oligopoly of three mills has been churning out foreclosure paperwork night and day. The state has called judges out of retirement to set up a special foreclosure tribunal with the proclaimed goal of processing foreclosures as fast as it can, usually without being overly diligent about the actual legality of any given foreclosure.
 
The cries of abuse and lawlessness have become so universal that state attorney general Bill McCollum, certainly not known as a friend of the people, has felt constrained to initiate an investigation of the mortgage mills.
 
Meanwhile Naked Capitalism recently divulged how big banks like Wells Fargo are trying to wash their hands of the mess they presided over by forcing buyers of foreclosed properties to absolve the bank of any responsibility in case the foreclosure turns out to have been fraudulent because the foreclosing party didn’t actually own the deed. The banks want to shift all the risk onto the buyer (the pain is of course sustained by the foreclosed debtor), and if necessary the legal blame onto a lower-level servicer.
 
In response to McCollum’s investigation, Florida congessman Alan Grayson has written a letter to the Florida supreme court asking it to suspend the operations of the quasi-legal mortgage tribunals. The state itself has acknowledged there may be a structural problem with the legality of the mortgage and foreclosure disposition, so how can the state continue to stampede the foreclosure process like this?
 
Not coincidentally, on the same day as Grayson’s letter was publicized Bloomberg reported that GMAC has suspended all foreclosures in 23 states, including all but one of the judicial recourse states. This follows upon allegations of systemic and systematic fraud on the part of GMAC officers. On its face it seems that GMAC is massively exposed to liability for fraud and is scrambling to retrench before it continues going before judges under oath. (I don’t know how the perjury system works on signed affidavits in non-judicial states, but it sounds like there’s less danger there.)
 
GMAC responded to the Bloomberg story claiming that it’s only suspending ongoing foreclosures, not halting new ones. We’ll see what that means.
 
As we see, not only is this land distribution illegitimate in both moral and practical terms. The banks in their greed and carelessness have also inadvertently abrogated their “ownership” even according to their own corrupted law. Now the system has to try to do what it does everywhere else – scramble to bail itself out, to cobble together a temporary kludge to keep itself propped up just a little while longer. So they’ll have to somehow find a way to retroactively legalize this lawlessness, or at least politically normalize lawlessness just as they’re trying to normalize permanent mass unemployment.
 
Even as it sways with greater vehemence in the rising wind, the Tower of Babel keeps being built higher, each layer more heavy than that below it. Even as they must prevent the bubble from deflating further, they must try to reflate it and keep it inflating forever. Even as they try to reflate the bubble they find its very legal basis devastated, and must try to construct a passable pseudo-law to pose as the real one. And they must do all of this as they struggle to maintain political control.
 
I hope the efforts of bloggers and rare MSM reporters like the NYT’s Gretchen Morgenson will get these stories and the truth they convey out into the public consciousness. It’ll help toward weaning people from the “ownership society” scam, one of the most pernicious scams encouraging debtors to cling to their debts, that is to the system itself, against their own interest. The HAMP scam was founded upon this goal. But eventually the entire scam must founder and fail.

September 15, 2010

Some Ideas – What We Need To Do

 

How to get the message out there? We’ve discussed the refinement of online activity – a new website, web TV. (There are already sites out there which seem to some extent aligned with the basic goal, and people have suggested that we try to systematically post to those.)
 
Then there’s also the offline front – getting out into the community. Forming sustainability groups, community gardens, local economy intitatives, other community volunteering and activism, becoming involved in local politics on a sustainability and anti-system basis. Again, there are templates out there. I’ll compile and post a list when I get the time.
 
Little by little this process has been organizing itself from the bottom up, from people everywhere taking the initiative on their own. Then recognizable organizations like Transition Towns and Slow Food start to form, which provide some of those templates and perhaps an organizational umbrella. I don’t think people need to start seeking umbrellas yet (if ever), since the vitality of this movement is grounded in its indigenous spontaneity. When I talk about unified campaigns, I’m presupposing a critical mass of existing groups who can then coordinate according to ideas which have meanwhile been promulgated. I suppose I see myself as trying to help with the task of formulating and propagating the ideas.
 
Here’s one possibility for idea coordination, which could also have many other benefits. Are readers familiar with Toastmasters? It’s an organization for the practice of public speaking. I’ve never been to a meeting myself (the times I checked there was no chapter within a convenient distance), but I’ve read about it. I guess the members are mostly careerists looking to hone their business and backslapping skills. But we could use these skills as well.
 
So my idea was that people who share a dedication to a political cause could form their own such groups. Nominally it would be a public speaking/book discussion group. But it could also serve as the vehicle for coordination of ideas and messaging, including people taking on particular tasks.
 
The way I just described that involves meeting in real life, wherever there were enough people within driving distance of one another. But something similar (of course without the public speaking component) could be done online as well. FireDogLake has its regular book salons, to give one example.
 
So that’s one idea.
 
The overall strategy: Affirmatively, relocalization and direct democracy. Negatively, in terms of resistance, passive resistance, coordinated toward mass civil disobedience. For example, we should start to come up with a game plan for how to resist paying the health racket extortion mandate. (I operate taking for granted that the “regulations” and “subsidies” in the bill will never manifest, and wouldn’t suffice even if they did, so the paper we’re forced to buy will be worthless. This should be obvious from the entire trend of bogus regulation and the fact that the same criminals who are trying to gut Social Security as we speak are not telling the truth when they promise to add a new public expenditure. There are more specific proofs as well. But I should prove it just for the record, so I’ll soon dedicate a few posts to that.)
 
We should look at how an idea like MMT is spreading in the blogosphere, how eager and thirsty people are for new ideas, new ways of looking at things, new prescriptions for how to break out of the trap. (Unfortunately the first wave MMTers are implicitly or explicitly reformist and not radical. So the second wave will have to adapt this tool for use as part of a radical prescription. I haven’t yet written posts on MMT, but that’s upcoming as well. Anyone looking for a good historical treatment of the idea’s potential should consult Lawrence Goodwyn’s The Populist Moment for its discussion of greenbacker advocacy among the radical farmers. I also recommend it as a great book on movement-building, period.)  
 
We also need to encourage the debt jubilee. Since the prevailing idea can be summed up as:
 
1. The banks rightfully own the land;
 
2. The housedebtor has an obligation to pay the mortgage;
 
we need to start by counteracting these. I have many posts on this, under the category Land Recourse and the tags Strategic default (a bogus term I’ve since retired; I should change the name to “walking away”) and Fannie and Freddie.
 
Here’s a few:
 
 
 
 
 
 
 
 
The truth is:
 
1. The banks never legitimately owned the land, we the people own it.
 
2. Even if they had, and however we look at it, since the Bailout we the people own the banks. So all their “property” including the land reverts to us anyway.
 
3. Even according to their own rigged “legality”, with the MERS system having dissolved unified ownership and in many cases lost the physical note, the banks have abdicated this ownership, inadvertently dissolved it.
 
4. As for the mortgage contract, if it’s non-recourse then walking away is a perfectly sound, by-the-book provision of the contract.
 
5. Since the banks stole everything they have to begin with, since they intentionally plunged the economy into this incipient Depression and used the crash they intentionally caused to loot even more trillions, we also have the moral right to stop paying but stay in the house as long as we want. This is an example of bottom-up direct restitution.
 
6. Such squatting is actually positive for the community. In many regions the banks simply let the foreclosed or abandoned property rot, to everyone’s detriment.
 
So there’s a basic outline of the argument for debt jubilation.
 
Those are a few ideas I have, pieces of the overall picture. I’ll try to get it all out there as best I can. So do people reading this agree with some or all of it? Reject any of it? I think it’s all on the same wavelength, headed in one direction on one trajectory. I’ve tried to weed out ideological inconsistencies and principle-tactic mismatches. It’s not complete yet, but I think it’s getting usably close.

September 9, 2010

Housing Divided

 

There’s been considerable buzz lately on the doomed attempt to sustain and reflate the housing bubble. Should policy capitulate to the real free market and let prices deflate? Which is another way of saying, should we let prices move closer to reality? Housing became absurdly expensive, way beyond any historical measure, as a result of the bubble. Reality now wants to deflate.
 
This would contradict the government’s commitment to propping up the zombie banks, as their fraudulent balance sheets are dependent upon reflating the bubble. This has been the basic contradiction from the start of the Bailout: Corruption vs. increasingly insistent reality. It defines how the Bailout, even leaving aside its criminality, is a policy of fantasy and insanity.
 
That’s why every phony mortgage mod plan was intended only to continue to extract payments while preventing prices from continuing to decline. That’s why cramdowns are anathema. That’s why the nightmare scenario would be large numbers of people making the rationally and morally correct decision to walk away* from underwater mortgages. That’s why the desperation position, including that floated a month ago as a rumor about upcoming GSE policy, would be to really renegotiate payment schedules but not write down the principal (the HAMP was a lie which promised to do this).
 
[*Among the non-rich there’s no such thing as a “strategic default”. Even those who could at the moment afford to pay have to take into account the precariousness of their situation. No one who isn’t rich can say with confidence that he’ll be able to keep paying indefinitely, or that his payments now won’t end up having been an irrational mistake in retrospect. If there’s any doubt at all about one’s negative equity, we have to assume we can’t afford to maintain it. So if the definition of a strategic default is to “walk away while you can still afford to make payments”, then for the non-rich there’s no such thing as a strategic default.]
 
This week two NYT articles expressed the elite ambivalence. They struggle in the contradiction. The reality of asset deflation stares them in the face, but given that the Bailout cannot coexist with this reality, and given that they’re nevertheless committed to the Bailout…..
 

Caught in the middle is an administration that gambled on a recovery that is not happening.

“The administration made a bet that a rising economy would solve the housing problem and now they are out of chips,” said Howard Glaser, a former Clinton administration housing official with close ties to policy makers in the administration. “They are deeply worried and don’t really know what to do.”

 
Streitfeld describes the policy follies, talk of another destructive housedebtor tax credit, administration cadres contradicting one another, empty proclamations, “stakeholders” like Bill Gross still pimping the rumor about really doing rate reductions (but not principal cramdowns), the administration still resisting….it’s all very stupid.
 
I won’t bother documenting all the lies and editorializing in the piece. There’s as much as you’d expect from an NYT piece on this subject, because it too is committed to the Bailout and the permanent zombification of those fraudulent balance sheets.
 
But I must emphasize the falsehood of this line of propaganda:
 

The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

 
Nobody “chose” current housedebtors. The corrupt politicians chose to prop up prices as part of the bank bailout. The housedebtors are just an occasion for that.
 
Here’s the editorial core:
 

A small decline in home prices might not make too much of a difference to a slack economy. But an unchecked drop of 10 percent or more might prove entirely discouraging to the millions of owners just hanging on, especially those who bought in the last few years under the impression that a turnaround had already begun.

 
So according to the NYT the current propensity of housing prices to fall is a minor glitch in the big scheme of things, and not at all a major symptom of the core insanity and unsustainability of the exponential debt/growth economy itself.
 
So letting prices fall in compliance with reality would really be just “choosing to do nothing” in the face of an annoying but fixable SNAFU, and this capitulation would have nothing to do with restoring reality-based economic balance. Meanwhile, it would badly hurt those still clinging to the American Dream.
 
The desired implication is obvious – the reader should demand forceful action to prop up housing prices. In this way the NYT hopes to astroturf unwitting “bottom up” support for the Bailout.
 
Streitfeld’s colleague Leonhardt takes a different tack, discussing whether housing was and is actually overpriced at all, and what that ought to mean. Of course, this is simply inventing a false debate by taking those who state the obvious, pairing them with mercenary hacks, and pretending there’s a real question being asked and answer being sought.
 

No one doubts that prices rose roughly with incomes from 1970 to 2000. The issue is whether that period was an exception. Housing bears like Barry Ritholtz, an investment researcher and popular blogger, say it was. The government was adding new tax breaks for homeownership, and interest rates were falling. These trends won’t repeat themselves, the bears say.

As evidence, they can point to a historical data series collected by Mr. Case’s longtime collaborator, Robert Shiller. It suggests that house prices rose no faster than inflation for much of the last century…..

The second, less bearish group of economists doesn’t buy this. This group includes Mr. Case, Mark Zandi of Moody’s Analytics and Tom Lawler, a Virginia economist who forecast the end of the housing boom before many others did. They say they believe that house prices rise nearly as fast, if not quite as fast, as incomes, and that real estate is no longer in a bubble.

 
The inclusion of Zandi says it all for where the “less bearish” are coming from.
 
Leonhardt does ask a question which goes to the core, far deeper than he intends.
 

I can’t claim to clear up all the uncertainty. But I do want to suggest a framework for figuring out whether you lean bearish or less bearish: do you believe that housing is a luxury good and that societies spend more on it as they get richer? Or do you think it’s more like food, clothing and other staples that account for an ever smaller share of consumer spending over time?

 
He means of course that given the neoliberal rigged-market and Social Darwinist parameters, “is this the way things behave?”
 
But the real answer is always the prescriptive, not the descriptive. So the answer to the question is that in a healthy society housing “prices” would act in the latter way, and that’s the society we must rebuild. Since we all need housing, if we have to “pay for” it then no one has the right to treat it and pay for it as a luxury. That’s coercion and assault against those who can’t afford to pay luxury prices for a necessity.
 
That brings us back to the core issue here. These articles represent the housing quagmire as an isolated policy mess. They emphasize how painful asset deflation may be for housedebtors. But this is doubly false.
 
Housing policy has nothing to do with the good of the householder and everything to do with propping up insolvent banks and enabling them to continue their rent extractions. And reality’s compulsion toward asset deflation isn’t some accidental thing floating around which policy is free to choose to deal with or not. It’s the result of structural gravity, of the physical (Peak Oil) and economic unsustainability of infinite growth, which has reached its limit.
 
Underwater housedebtors can’t be removed from their predicament by any top-down policy short of cramming down the principal, which would directly contradict the reflation imperative of policy. They can remove themselves by walking away from the self-destructive debt. Or if they surrender to their plight and wait for policy to help them, that’s simply committing fiscal suicide, since sooner or later policy will be overwhelmed by reality. But in the meantime their passivity just enables the Bailout, just enables their own debt enslavement, and portends the enslavement of us all. In that sense underwater debtors who don’t jubilate are a kind of scab.
 
So however painful in the short term jubilation and capitulation to deflation may be, it’s the only way. You can’t appease fascists, and to genuflect before the neoliberal version by continuing to play its debt game by remaining the good little sharecropper is just another pre-doomed attempt at appeasement.
 
Housing divided by the banks can never be united through compromise with the banks. A house divided by class war can’t be united except by fighting hard and following through to the bitter end, for only there can we break through and beyond to freedom.

August 8, 2010

Freddie Mac: “Rumors” (A New and Improved HAMP Scam?)

 

With the HAMP scam reaching the most becalmed horse latitudes of incredibility, dubious rumors have it that Obama’s ready to try again with a new mortgage mod scam, this one centering on the GSEs. This rumor may be just hype, but the issue’s likely to keep coming up, if only because the kleptocrats will feel the need for a fake carrot to accompany whatever sticks they try to use to beat the strategic defaulters. So I figure a short post on the subject is worthwhile. 
 
Whenever you see the system say anything about mortgages, the basic facts to immediately summon to mind are:
 
1. The system is committed to propping up housing prices and if possible reflating the bubble. This is to prop up the balance sheets of the bankrupt banks, and in their wildest dreams get securitization going again, blowing the same bubble all over again.
 
2. The system’s worst nightmare is bottom-up debt jubilation. The growing wave of strategic defaults is beginning to comprise a mini-jubilee. So in anything, if we assume they’re trying to stave off strategic defaults we’ll never be wrong.
 
The only things which could possibly help distressed borrowers are principal writedowns and bankruptcy court cramdowns. But these would constitute the system’s capitulation to reality-based deflation. Therefore, unless they decide to completely overthrow their existing policy, any alleged relief they offer will have to be a scam. The way we can measure this scam is simple: Does the proposal acknowledge lower asset prices of not? If not, it’s a scam meant to string underwater borrowers along, trying to dissuade them from strategically defaulting and to extract more payments out of their doomed position before the inevitable foreclosure.
 
Thus the HAMP offered temporary mods to those current on the mortgage, dangling the fictitious carrot of a permanent mod while the real goal was simply to get someone who might walk away to instead throw a few more full payments down the rathole.
 
So what are we hearing about this alleged new policy?
 

Ongoing rumors of a streamlined GSE induced refi wave began last week with notes from Morgan Stanley and Bank of America. Folks at these firms proposed that borrowers could benefit, resulting in increased consumer spending, if only the GSE’s initiated a streamlined and broad program to allow those of their mortgagees who are current on their mortgages to instantly refinance from their higher rate mortgages to current market rates.

The argument is, since the GSEs own the credit risk anyway, they should change the refinancing requirements and lower or eliminate appraisal requirements and LTV requirements for refinancing. Doing so would, it is suggested, lower the burden on borrower cash flows, as they would benefit by lowering their rates by about 150bp. The pitch was ‘it would be a costless plan with real benefits’. Nice theory, too bad it doesn’t work and isn’t possible.

 
So the principal remains the same. The borrower’s payment is refinanced, while the taxpayer covers the rest via last December’s GSE Bailout extension. The banksters win, they keep being bailed out and keep having their fraudulent balance sheets propped up. The underwater debtor keeps drowning, but at a slower pace. Over the long run more could perhaps be extracted from him this way than under the HAMP scam. The limp bubble gets some hot air pumped into it. The taxpayer is robbed all the way down the line. 
 
That sure sounds like Obama. If the rumor ends up being false, it’s not because it was implausible.

March 26, 2010

Desperation Stage for the Bailout

 

Yesterday before Congress Ben Bernanke agreed that the Fed’s balance sheet is now over $2.3 trillion. He lamely said he dreams of its someday returning to its pre-Bailout level below $1 trillion.
 
We see the contradiction. Today the Bailout looting is primarily laundered through Fannie and Freddie MBS buys, and the Fed has been the main repository of this toxic junk. Taxpayer money is thus directly stolen by the government and handed over to the banks, while the worthless paper received in return is meant to prop up the worthless paper already on the banks’ balance sheets.
 
There’s no other “market” participant here, because there is no market. The market wants to deflate. Only the zombie banks and their government stooges are artificially resisting reality.
 
So how can the Fed stop buying? There’s no one else to prop up MBS values, and no one else to artificially goose “new sales”. Doesn’t that Fed balance sheet have to keep bloating, as the main bloat of the reflation?
 
A measure of the intractability of these knots is how banks and the Obama administration are being driven, very much against their will, to extreme measures to try to prop up the mortgage market.
 
Their baseline has been clear all along. They want to reflate the bubble, and failing that they want to stabilize prices and extract as much revenue as possible from distressed borrowers. So the scam was always to pretend to want to help borrowers, while they were really just stringing them along, getting them to keep making payments they couldn’t afford for as long as possible before the inevitable foreclosure. Most of all they try to prevent borrowers from walking away from the mortgage while there’s still any blood left to squeeze out of them.
 
Any government who really wanted to help borrowers would empower bankruptcy judges to impose writedowns of principal (cramdowns), and if any kind of government backstop was to be provided at all (which it shouldn’t be), it would be predicated on requiring writedowns of principal, where the lender would have to take the bulk of the loss, with the taxpayer assuming only minor exposure at most.
 
But this government has demonstrated its bad faith all along by actively repressing bankruptcy cramdown empowerment, while enacting only a phony mortgage modification program, which was never meant to produce more than a token number of permanent mods. Instead it was meant to use the application process and temporary mods to string along all these borrowers, while the whole process was guaranteed by the taxpayer. Direct handouts for the lenders are even a part of it. The whole thing’s simple consumer fraud and embezzlement, along with some direct theft thrown in.
 
Yet reality’s avenging sword in the form of debt deflation has been too fiercely wielded for this lame program to suffice. The market’s still melting down, delinquencies are still rising, and new data indicates that we may be reaching a tipping point on the willingness of people to walk away.
 
Historically, even those who are deeply underwater on their mortgages only rarely walk away if they’re capable of making the payments. In my previous series on strategic defaults (part 1, part 2, part 3, part 4, and part 5) I discussed the reasons for this. The system’s actions are predicated on this. That’s why so far the HAMP was available only to people who met a certain threshhold of distress, and why in general lenders have been willing to get serious only once someone is already delinquent 90 days or more. The only time they ever get serious about modifying anything is once they think the borrower has become a real risk to walk away.
 
By contrast, those who are merely underwater but are believed to be able to afford the payments are never the recipient of help, but instead get the moralizing propaganda treatment, “you should pay your debts; you’ll be a bad citizen if you walk way”, and the rest of it. This is because historically the data supports the expectation that if those in negative equity can afford to keep paying they will.
 
But as I said, there’s some evidence this may be changing. That’s why we’re seeing some shift in what banks and the administration are willing to do. Reality is dragging them along, slowly, kicking and screaming.
 
The new version of the Obama scam has the same goal as the old one: Prop up zombie bank balance sheets and reflate the bubble. But now they say they’ll not only continue with the old policy of temporary reductions in payments, but they’ll try to convince the lenders to make some principal writedowns as well. Here’s the key measure of their desperation: Their previous policy pretended to help only those already “distressed” (those already in the delinquency labyrinth, those whose credit scores were already getting whacked, those who might be reaching the end of their willingness to not walk away). Now for the first time they say they’ll try to do something for the 11 million (20% of those with mortgages) who are merely underwater.
 
Meanwhile Bank of America is following Citi in pretending to extend its own mod program.
 

The bank said it would reach out to delinquent borrowers whose mortgage balance was at least 20 percent greater than the value of the house. These people would then have to demonstrate a hardship like a loss of income.

 
So BofA has now on its own reached the point Obama reached a year ago, and from which Obama now feels he needs to retreat somewhat. I guess that’s an indication of how the banksters are the most hard core psychopaths, while their government flunkies are weaker and somewhat more vulnerable to public and reality-based pressure.
 
The new administration plan, while still unclear in the details, will plunder the taxpayer all the way, including using perhaps $14 billion of TARP money. We should be clear that even if bowing to reality requires them to actually really help some underwater borrowers:
 
1. This is done only for the profit of the insolvent banks;
 
2. All such help, and any writedowns the banks actually undertake, is subsidized 100% by the taxpayers;
 
3. It’s doomed to fail anyway at propping up the bloated price, let alone reflating the bubble.
 

This much was clear, however: the plan, if successful, could put taxpayers at increased risk. If many additional borrowers move into F.H.A. loans, a renewed downturn in the housing market could send that government agency into the red.

The F.H.A. has already expanded its mortgage-guarantee program substantially in the last three years as the housing crisis deepened. It now insures more than six million borrowers, many of whom made minimal down payments and are now underwater.

 
Since “a renewed downturn in the market”, AKA the market continuing to return to a reality-based level, is inevitable, we can confirm that here the government is simply trying to socialize on the taxpayer bank losses it considers inevitable.
 
So with this we have an indicator that the administration is being pushed along by some sense of reality, even as Bernanke glumly ponders the Fed’s balance sheet. How can it be true that the HAMP wasn’t sufficient and needed to be tweaked so that the benefits don’t fall 100% to the banks (but according to the new plan more like 99%; the point is that they’re grudgingly facing the fact that to help the banks at all they may have to actually help a few real people, or else see the whole mess go down the tubes as strategic defaults reach a tipping point; as the Guiso-Zingales-Sapienza study found, walking away is highly contagious); how can that be true, but it also be true that the whole Bailout can be laundered through the Fed? It can’t be true. These are recursive iterations. The MBS scam, the whole laundering process from the GSEs and the FHA up to the Fed and Treasury, with the hapless HAMP trying to do emergency repair work in the innards, is a tottering Tower of Babel.
 
They keep building it higher, more top heavy, while frantically trying to patch up the crumbling foundation, using up their duct tape, then scotch tape, and now they’re down to the band-aids.
 
Reality is banging on the door, and is now calling up the battering ram. How long can they keep the door barred?

March 1, 2010

(De)fault Line Status Report: MBS and Mortgages

 

One of the great mysteries of the universe for this administration is what to do about mortgages. The political heat is on to help the growing legions of underwater homeowners, more and more of whom have taken the added hit of unemployment. They can envision only one outcome which can help those mired in negative equity, and that’s to reflate the housing bubble. That’s because their only answer to every policy question is to reflate some bubble, any bubble.
 
But stubborn reality is refusing to cooperate. Reality wants to deflate. “The market” wants real price discovery. Everything is resisting the administration’s bland hopes that an anodyne modification program, based only on temporarily reducing payments (while applying compounding interest to the principal), with only a thin slice of the beleaguered borrowers eligible, with lenders obstructing the whole way, can restore bubbling prices.
 
If that description sounded silly, it’s because the program isn’t meant to achieve anything. The whole thing really just meant to put on a political show. As always with Obama, it’s empty words and no action. That’s because the only things which truly could help underwater mortgage holders are permanent mods based on reductions of principal, and empowering bankruptcy judges to write down principal themselves (cramdowns). The problem here, other than that it eats into bank profit, is that writing down principal would help prices go in the reality-based direction, which directly contradicts the Obama re-bubble fantasy.
 
And what’s going to happen at the end of March when the Fed’s MBS purchases are supposed to end? In December the system quietly authorized itself to extend these buys to infinity, through the Fannie and Freddie bailout. (Fannie just announced it lost $16.3 billion in the Q4. As Dean Baker pointed out, if Fannie’s expenditures are simply buying MBS from the banks, and they lose money on the deal, then by definition they paid the banks too much. It’s simply another laundered bailout. A clandestine, illegal TARP.) But since the government is the only buyer for this toxic crap, if they stop buying MBS, the market for bundled loans will dry up. Without having an automatic buyer at bloated prices, mortgage lenders would find it worth their while to lend only at higher rates. The market is already moribund. So this can only further depress it. So there’s every reason to believe that the administration will see no choice but to continue with the MBS buys. How else can they even pretend to themselves they’re reflating the bubble?
 
What’s a poor administration to do? They seem well stocked with theology (“I believe because it’s absurd”; we are magically “predestined” toward resumed bubble growth) and metaphysical philosophy (“a conflict of duties is inconceivable”; the status quo is “the best of all possible worlds”), yet oddly these aren’t working. Maybe it’s time for some astrology? Elizabeth heard what she wanted to hear from Nostradamus, and she survived extreme perils. And Reagan’s reputation is holding up pretty well among Obama’s kind of people. Reagan is his hero, and he strives to imitate Reagan in every other policy arena, so why not bring in an astrologer as well? (I’d suggest the Oracle at Delphi if she still existed, but even of she did it would seem she’s not doing the Greeks much good these days.)
 
Well, we can leave Obama to rot in his self-festered cesspool. In the meantime, what about us peasants? How should we be viewing all this? What should an underwater homeowner be thinking? A renter?
 
We know the government doesn’t care about us. It cares only about the banks, and will do everything for the banks’ benefit. If that ever accidentally helps us, that’s incidental and not a feature.
 
So if they want to reflate the bubble, then they do want to accidentally help recover some of the position of existing underwater borrowers (although this completely leaves aside job loss and everything else which will make the high nominal mortgage values untenable regardless of what the market says). But at the same moment this would perpetuate the longstanding overvaluation of the necessity, shelter. With over 17% unemployed or underemployed (and if you add in all those who aren’t even counted by the U6 number but who really aren’t making this kind of living wage, the number is worse) and getting worse, any zombified housing bubble would simply increase the pain on the non-rich.
 
And it really wouldn’t help existing underwater borrowers in the long run. No such bubble is sustainable, and to zombify prices would simply delay the reality-based deflation and render it all the more catastrophic when it returned a few years down the line. In the meantime an ever greater mass of Americans would be priced out completely. Extended families cramming themselves together and tent cities will become ubiquitous.
 
So the prospect is for the unholy Fed-GSE MBS scam to be the lead drivers of the Bailout to prop up housing prices as high as possible for as long as possible, for the sake of propping up the insolvent banks’ balance sheets and phony profits, extending some meager relief to some homeowners while inflicting yet more general pain upon the populace.
 
So far their top-down reflation efforts have failed. One new kludge they’re floating is a HAMP-imposed freeze on foreclosures. This looks like an extension of the existing HAMP scam, the intent being the same, to induce underwater mortgage holders to keep paying instead of walking away. The only difference would be that whereas the old HAMP gave the lender complete freedom to foreclose at will, this would on paper restrict that. But the goal is the same, to bait people into thinking they’ll get a really helpful permanent mod when they’re really just being strung along.
 
Another, rather bizarre, proposal is to have the FDIC in some unspecified way effect a principal reduction after the underwater borrower has kept paying for some length of time. Again, reeks of a bait and switch. Meanwhile Citi is trying out the “deed in lieu of short sale” in several states. The deal would be that the borrower turns over the deed, gets to stay in the home for a certain number of months before leaving, and the bank promises not to foreclose during that time. (The borrower promises not to trash the house or strip it for spare parts.) You’d qualify for this plan once you’re 90 days late on the mortgage. So the borrower has to already have entered the credit score reporting extortion labyrinth before qualifying. In other words, this program is only for people who look serious about walking away. It’s not for those Citi thinks it can still bully into keeping up on payments they can’t really afford. It is not meant to help borrowers, even a little bit, but rather only to help Citi.
 
So there’s the situation. It’s doubtful that the system can reflate the bubble enough to help more than a few underwater borrowers. Such a reflation would be extremely precarious and temporary. It would be set up in a way to benefit the banks only, while their only real goal vis the borrower is to pretend they’re helping him.
 
So for those who are underwater, as painful as it may be, the reality is that their situation is not likely to be improved except in maybe the most fleeting manner. (So if you are holding on hoping prices will go back up, and they somehow miraculously do, you should probably get out while you’re lucky.) If you love your house and want to struggle to stay in it, fine. But be clear that it’s likely to remain a struggle. People shouldn’t let themselves be strung along with seductive lies about how the price can stably go back up, implicitly that there was never a bubble in the first place. There was. Eight trillion dollars worth. That $8 trillion is gone forever, as part of the inconceivable destruction of bubble wealth which has taken place. The only way they could “reflate” even a miniscule fraction of this would be through hyperinflation.
 
Strategically defaulting is and almost certainly will remain the best rational option for those suffering negative equity. Everything the system does is geared to obscuring that truth and saying “trust me.” We should know by now we can’t trust them. They don’t have our best interests at heart, and everything they say is a lie. 

February 18, 2010

What Does Nietzsche Say About Credit Scores?

Filed under: Land Reform, Law, Neo-feudalism, Nietzsche — Tags: — Russ @ 6:22 am

 

When I wrote previously about strategic defaults (part one of the series here), one of the issues I discussed was the creditor’s ability to rat out the defaulter to the credit report bureau, to trash his score.
 
This kind of punishment is general throughout the process, for missing a payment, for being foreclosed upon, for strategically defaulting, for going bankrupt. Little of it has any relation to one’s actual behavior. It doesn’t matter whether somebody was a rampaging “flipper” or someone pumped full of American Dream propaganda and hard-sold on a predatory loan, who later loses his job, sustains a medical crisis, or simply is dumped underwater by the bursting of the bubble. In every case the point of the system is to intimidate and bully the consumer into docile, compliant rat-racing behavior.
 
In this particular case, the banks blew up the bubble and made the subprime loans, while the government and MSM indoctrinated the people into the home-ownership debt ideology. And now that the bubble has burst, the hapless borrower is supposed to take the full hit, while every cent of fraudulent bank “profit” is conserved.
 
As Brent White writes, this is not only a unilateral reshuffling of the contractual balance of exposure, but hinders any rational, equitable mortgage modification policy goals.
 

Most lenders will, in other words, take full advantage of the asymmetry of norms between lender and borrower and will use the threat of damaging the borrower’s credit score to bring the borrower into compliance. Additionally, many lenders will only bargain when the threat of damaging the homeowner’s credit has lost its force and it becomes clear to the lender that foreclosure is imminent absent some accommodation. On a fundamental level, the asymmetry of moral norms for borrowers and market norms for lenders gives lenders an unfair advantage in negotiations related to the enforcement of contractual rights and obligations, including the borrower’s right to exercise the put option. This imbalance is exaggerated by the credit reporting system, which gives lenders the power to threaten borrowers’ human worth and social status by damaging their credit scores – scores that serve as much as grades for moral character as they do for creditworthiness. The result is a predictable imbalance in which individual homeowners have borne a huge and disproportionate burden of the housing collapse……

The suggestion that Congress should amend the Fair Credit Reporting Act to prevent lenders from reporting mortgage defaults is premised upon the underlying mortgage contract, in which lenders agree to hold the house alone as collateral. In the case of underwater mortgages, however, the portion of the mortgage above the home’s present value essentially becomes unsecured. Lenders compensate for this by holding the borrowers’ credit score, and thus their human worth, as collateral – thereby altering the underlying agreement that the home serves as the sole collateral. As a consequence, lenders are often able to reap the benefit, but escape the costs, of their bargain.

 
The credit score has been institutionalized as a key metric not only of financial reliability but of character, reputation in general. The point is not only to clinically catalog financial behavior, but to threaten, extort, punish, shame, outlaw.
 
This seems like a recrudescence toward olden times where the punishment of debtors was actually part of what Nietzsche called the “festival of cruelty.”
 
N writes (On the Genealogy of Morals, essay II, sections 5-6) of the creditor inflicting pain, even literally extracting flesh, as recompense when the debtor can’t pay.
 

Let us clarify for ourselves the logic of this whole method of compensation—it is weird enough. The equivalency is given in this way: instead of an advantage making up directly for the harm (hence, instead of compensation in gold, land, possessions of some sort or another), the creditor is given a kind of pleasure as repayment and compensation—the pleasure of being allowed to discharge his power on a powerless person without having to think about it, the delight in “de fair le mal pour le plaisir de le faire” [doing wrong for the pleasure of doing it], the enjoyment of violation. By means of the “punishment” of the debtor, the creditor participates in a right belonging to the masters. Finally he also for once comes to the lofty feeling of despising a being as someone “beneath him,” as someone he is entitled to mistreat—or at least, in the event that the real force of punishment, of executing punishment, has already been transferred to the “authorities,” the feeling of seeing the debtor despised and mistreated. The compensation thus consists of an order for and a right to cruelty.

 
He goes on:
 

In this area, that is, in the laws of obligation, the world of the moral concepts “guilt,” “conscience,” “duty,” and “sanctity of obligation” has its origin—its beginning, like the beginning of everything great on earth, was watered thoroughly and for a long time with blood. And can we not add that this world deep down has never again been completely free of a certain smell of blood and torture—(not even with old Kant whose categorical imperative stinks of cruelty)? In addition, here that weird knot linking the ideas of “guilt and suffering,” which perhaps has become impossible to undo, was first knit together. Let me pose the question once more: to what extent can suffering be a compensation for “debts”? To the extent that making someone suffer provides the highest degree of pleasure, to the extent that the person hurt by the debt, in exchange for the injury as well as for the distress caused by the injury, got an extraordinary offsetting pleasure: creating suffering…

 
N calls this a conjecture regarding how the whole sense of guilt, the “bad conscience”, was branded into prehistoric man. And today the system, in scrambling to maintain that sense of guilt among the peasants even as its own criminality and abdication of authority becomes ever more manifest, is retrogressing to measures redolent of this primordial guilt branding.
 

It seems to me that the delicacy and, even more, the Tartufferie [hypocrisy] of tame house pets (I mean modern man, I mean us) resist imagining with all our power how much cruelty contributes to the great celebratory joy of older humanity, as, in fact, an ingredient mixed into almost all their enjoyments and, from another perspective, how naive, how innocent, their need for cruelty appears, how they fundamentally think of its particular “disinterested malice” (or to use Spinoza’s words, the sympathia malevolens [malevolent sympathy]) as a normal human characteristic:—and hence as something to which their conscience says a heartfelt Yes!* A more deeply penetrating eye might still notice, even today, enough of this most ancient and most fundamental celebratory human joy. In any case, it’s not so long ago that people wouldn’t think of an aristocratic wedding and folk festival in the grandest style without executions, tortures, or something like an auto-da-fé [burning at the stake], and similarly no noble household lacked creatures on whom people could vent their malice and cruel taunts without a second thought.

 
This puts reality TV, ever more humiliating and destructive, in perspective. Are Stephen King’s dystopic game shows “The Long Walk” and “The Running Man” far off in reality?
 
We’re seeing the new outlines of the old medieval jurisprudence – outlawry, debtors’ prison, and the festival of cruelty. Sublimated judicial combat, in the form of the adversarial legal system becoming a monetized arms race, who can afford to hire the fanciest lawyers, has long been entrenched. (I doubt that the right to an attorney at all if you can’t afford one would ever be enshrined today if it weren’t a superprecedent already; and we can expect to see that under increasing nominal attack, just as it’s long been under surreptitious attack via budget cuts.) Most of all, just as the perverted religious premise that wealth equals merit and virtue has long been the establishment ideology, so more and more all of society is becoming a large scale trial by ordeal, wherein being able to find and hold a living wage job is just as inscrutable a religious Mystery as remaining in perfect health if you can’t afford health insurance, and in either case your success or failure is simply the judgement of god, of mysterious forces of nature. Were you one of the Elect or not?
 
Can you hold your hand in the flame without flinching? This judges your innocence or guilt, and in our times your human worth. There is no “society”, and certainly calculated top-down neoliberal policy has nothing to do with what’s happening, oh no.
 
These are all familiar signposts on our journey back to feudalism.

February 3, 2010

More on Strategic Defaults

Filed under: Civil Disobedience, Land Reform — Tags: — Russ @ 7:19 am

 

According to new research cited by the NYT, there’s some movement in the willingness of underwater homeowners to walk away:
 

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

 
This would be an advance over previous research, which found that even where underwater by hundreds of thousands of dollars, only a minority of homeowners would seriously think about walking away.
 
The article describes a typical borrower:
 

With prices now down by about 30 percent, underwater borrowers fall into two groups. Some have owned their homes for many years and got in trouble because they used the house as a cash machine. Others, like Mr. Koellmann in Miami Beach, made only one mistake: they bought as the boom was cresting.

It was April 2006, a moment when the perpetual rise of real estate was considered practically a law of physics. Mr. Koellmann was 23, a management consultant new to Miami.

Financially cautious by nature, he bought a small, plain one-bedroom apartment for $215,000, much less than his agent told him he could afford. He put down 20 percent and received a fixed-rate loan from Countrywide Financial.

 
Most people who are underwater became so in this fashion. You come of age, you have the financial wherewithal, you’re ready to buy a home, all your life you’ve been pumped full of propaganda about the American Dream, and how the core of the American Dream is to own a home. Under those circumstances, very few people stop to think, “this is a housing bubble, these prices are unsupportable, the bubble will have to burst soon, so we better just rent for now and see what happens.”
 
Although the liars of government and the market fundamentalist think tanks now say people should have been thinking that way, at the time they were all saying the exact opposite. The last thing they ever want anyone to do is think. Just as they don’t want anyone to think now, about what’s happened, who is to blame, and what people should now be doing.
 

The United States Treasury falls into the skeptical camp.

“The overwhelming bulk of people who have negative equity stay in their homes and keep paying,” said Michael S. Barr, assistant Treasury secretary for financial institutions.

 
They also want to propagate this theme that no one’s thinking about this, no one’s doing it. A core goal of government and MSM propaganda is to make the thinking person feel isolated, atomized, alien.
 
But it’s a lie.
 
If you read the article you’ll see how, just like with every other such article, they can’t find any independent voice to argue the “con” position, just bank and Treasury flacks.
 
Of course the government refuses to do the only two things which could help, demand permanent mods based on writedowns of principal, and empowering bankruptcy judges to impose cramdowns.
 
Similarly, the banks absolutely refuse to negotiate in good faith:
 

Mr. Koellmann applied last fall to Bank of America for a modification, noting that his income had slipped. But the lender came back a few weeks ago with a plan that added more restrictive terms while keeping the payments about the same.

“That may have been the last straw,” Mr. Koellmann said.

 
But people still burden themselves with scruples they know the banks don’t share:
 

Most of all, though, he struggles with the ethical question.

“I took a loan on an asset that I didn’t see was overvalued,” he said. “As much as I would like my bank to pay for that mistake, why should it?”

 
Why should it? Because it’s a gang of con men. Because it was a participant in a massive swindle. You bought at a bubble price way beyond what any real economy would have justified. That bubble was blown up by the banks, including your bank. Why shouldn’t it have to eat the loss now that prices are returning to reality?
 
The extent of the brainwashing is amazing. It’s just like American factory workers who say “The owner has a right to fire us, shut down the factory and move it overseas. That’s capitalism.” (Some actually think that.)
 
It’s like the old philosophical question, Why do people believe in free will? It’s obviously false, and often counterproductive. The answer is that some want to use the idea as a weapon on behalf of vested interests, while others, among the downtrodden, want to cling at all costs to the illusion of agency, as the only way to maintain their dignity. But rather than find their belief in freedom through fighting back against the oppressor, they find it in the easier, lazier, less dangerous path of identifying with him and pretending they support the oppression even when they’re its victims.
 
We can see this the way this manifests ideologically where it comes to economic issues. The racket ideologue says, “the borrower knew what he was doing, he’s at fault.” Meanwhile the borrower, rather than admit he was had, sides with the bank. That way he can vicariously join in the warm glow of the bank’s successful con job, even though he’s the mark, and it’s at his continuing financial expense.
 
(Though I really can’t see how the captured factory worker gets even that out of it, since by no stretch of the imagination can he blame himself, can he? What’s he supposed to say – “It’s my fault for demanding a living wage and safe work conditions”?)
 
But hopefully things are changing. If this research is correct, we’re moving in the right direction.
 
Here’s another underwater homeowner:
 

“It doesn’t seem right that I can rent a place somewhere for half of what I’m paying,” he said. “I told my bank, ‘Just take a little bite out of what I owe. That would ease me up. Isn’t that why the president gave you all this money?’ ”

Bank of America did not agree, so Mr. Figliola, who is 48, sees no recourse other than walking away. “I don’t believe this is the right thing to do,” he said, “but I’ve got to survive.”

 
It sounds like he’s not all the way there yet, but he’s coming round to seeing that it is the right thing to do. 
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