We are living in the last days of an economic paradigm where market failures simply did not exist and therefore were not a suitable topic for political debate. In this view market forces are the invisible hand of God (literally) and government intervention is humanistic and distorting.

However, many of the same advocates of market forces who refuse to acknowledge that the market is a human creation have no objections to manipulating markets by influencing lawmakers to write the rules of the game in their favor.

The road to recovery starts with admitting that there is no such thing as a free market in a developed economy. The role of politics is to set the rules and create a market that we all can live with.

Your point about the emergence of secondary markets is a good one. They are a device for separating the lender from the risk of lending. So the customer relationship is severed also.

But I don't think that Elizabeth's argument is undermined by this. The political and economic systems have been successfully railroaded by the wealthy, and the middle class is slowly being sucked dry. It's a lot like the boiling frog isn't it? If the middle class life style is eroded slowly enough they will lash out politically only when it's too late; and even then they'll probably lash out at the wrong people [i.e. at the so-called loafers and lay-abouts who exploit social programs].

I wonder how long it will be before the middle class realizes it's been duped and it lives in the wrong one of Elizabeth's two worlds.

'All Life is Problem Solving'

Get this knowledge out to the mainstream press, you pr geniuses who care. I don't think the message is getting through. Though it will probably sink in deeply over the next year.
Apologize in advance for the long comment, but this was posted originally at La Times La Land blog and I don't have a high level of confidence that their moderator will let it through as it talks too much about the real world. The big brains have partnered with the big bullies and they're sucking 99.99% of everyone else dry, imho.

*****************************************

You'd better sit down for this one:

The more we're becoming aware of how perceptions play a role in what happens to markets (mortgage, housing, or otherwise), the more we should become aware of those that seek to affect our perceptions and how they do it. Otherwise, we'll remain "suckers."

The media is becoming more and more entangled with suppliers of data... makes sense, right? They need those fancy stats to report. If you take a good look at the folks that are providing data to the la times for instance... interest.com and dataquick, you might wonder if this is a good thing for everyone. Seems ok... free access to plenty of numbers. La Times, for example, has a tool that lets you search by zip code for number of home sales, pricing, etc. Sound good so far?

But at what cost? I began to think about this when I read the article that was attached to this post... Dataquick was all over the article... lots of branding and lots of "commentary" on the numbers.

Who is Dataquick? Apparently a the property data business unit purchased from Acxiom (largest aggregator of credit card and other data, in the world), based in Little Rock, AK - by McDonald Detwiler, a Canadian company that also happens to be, funny enough, a large contractor to our federal government (among other things).

Detwiler's execs and board seem to have experience with oil and many other industries. They have offices in Canada, UK, Ireland, India, and even Plano Texas. Acxiom supposedly retained the "information gathering process" and has "signed a long-term licensing agreement to provide MacDonald Dettwiler with data used in creating the products." "Acxiom will retain use of the information in modeling products for other industries, but it has agreed not to compete with MacDonald Dettwiler in the real estate arena."

Who is interest.com? Well, if you do what's called a whois lookup to find out who registeed the site, you encounter something I've never seen before (doesn't mean much): a cryptic message, but no registration info or even a message that says it's been privately registered.

So you poke around a little and discover that the company behind interest.com is MMIS, Inc. MMIS, Inc./Interest.com was recently purchased by bankrate. Bankrate.com, when you do the whois search... tells you that they're located at 11760 US Highway One, suite 500, North Palm Beach. (ah... sunny north palm beach... cigars, flip flops, hawaiian shirts).

So? What is BV babbling on about again? Well... Thomas Evans, CEO of bankrate, it seems came from the "Official Payments" world... (Official Payments is (was?) "an internet processor of payment to government entities which he took public and subsequently was acquired by Tier Technologies." Remember that our old friend Kal Wayman was also in the payment processing industry?) "prior to that, Mr. Evans was a 20 year veteran of the magazine publishing business, his last post being the President and Publisher of U.S. News & World Report, Fast Company and the Atlantic Monthly Magazines."

Bruce Zanca, SVP and Chief Communications at bankrate came from Official Payments as well and was a "press aide in the Reagan and Bush administrations. There, he was a White House Spokesman and deputy to Marlin Fitzwater in the first Bush White House.

If you look at bankrates sec filings lately, you'll notice some interesting additions to the family.

So? Where's the quid pro quo? Who knows and who cares. Here's the concern... things have gotten a "little" unbalanced in the information gathering world from the looks of it. As we all know, knowledge is power... and it seems that the raw power is running wild here.

What's this got to do with La Times and Real Estate? Well, if the owners of the La Times have all these powerful folks giving them data, and if La Times is quoting these sources and advertising them liberally... isn't it reasonable to assume that these people have a very solid platform for influencing perceptions? And we all know that in the stock market (and now in real estate) perceptions make certain people a LOT of money, at the expense of 99.99% of everyone else. The bullies have gotten together with the big brains and they're having quite the party. Please cross post this if you think it has merit.

The reference to "Thanks for Smoking" is apropos. One of the roles of parody is to take a real world situation and exaggerate it for comic effect. The lobbyists in the movie were shameless. The question is why are those who ignore the death and misery they cause in reality so callous?

The issues with bankruptcy may be the focus here, but just think about the battles over HIV medicine in the third world, or the indifference to the plight of various refugees.

Last week on "Now" they did a bit on the fight to renew the SCHIP child health program. Sonny Perdue, the governor of Georgia, when confronted with a story about a diabetic young girl who needed daily treatment at a cost of about $900 per month and who was denied entry to the program because it was "full" said it wasn't his problem. They should talk to the local congressman since it was a federal program. He in turn blamed in on the Dems.

This isn't about a firm or a wealthy person making more money. These guys don't stand to profit personally. What is striking is their total lack of human feelings and empathy.

Psychologist Robert Altemeyer has studied people with this type of personality and finds that there is a strong correlation between the belief in a hierarchical social system, the need for a strong leader and conservative social viewpoints.

By blaming behavior on greed we may be missing a more fundamental issue, that those with a sociopathic type of personality tend to rise to the top of the hierarchy. They then impose their inhumane feelings on everyone else. Countering these people means understanding their makeup. I suggest reading his free, online book to get some insight into what we are facing.

The Authoritarians

You can't counter the opposition if you don't understand them.

--- Policies not Politics
Daily Landscape

The road to recovery starts with admitting that there is no such thing as a free market in a developed economy.

Amen!

Now how best to proceed from that admission...

The road to recovery starts with admitting that there is no such thing as a free market in a developed economy.

All they want is a market free of restraints on them.

Like Prof. Warren I too see some common threads but they are different ones than she notes. First, I think all the data on both sides are weak and need to be redone altogether. The EOUST data are worthless because they only count direct medical debt as opposed to financed debt. The pro-reform data, imo, includes numerous data that are not relevant to the question of how best to finance health care. The financial impacts on an adult's life of births and deaths in the family, and of lost income from being ill or needing to care for an ill relative are not going to be eliminated by a simple change in the insurance paradigm. Insurance coverage does not guarantee eternal life free of disease. And having counseled individual debtors, I am skeptical of their self-reporting.

The other common thread is that there is a prevailing tendency, as Prof. warren's post illustrates, to conceive of these issues in a binary, static and overly simple fashion. That is, the issue is defined as a choice between two modes of thinking - one, leave the status quo as is because it is ok, which is attributed to people who have illicit motives; and two, identify a shortcoming in the status quo, a proposed response to that shortcoming and label it a solution. No other perspective acknowledged, that's the binary part. The static part is that proponents of reform implicitly assume a static world in which everything remain the same except the one problem you are trying to fix, as if it was mechanical. The problem of unintended consequences in a dynamic world is ignored, just as Bush et al ignored the consequences of inserting ourselves into Iraq. Without analysis of the full ramifications of a large change to a dynamic system, it is impossible to conclude that the proposed change will result in a net improvement across the entire system. Spreading health care costs differently will surely benefit someone who has incurred disproportionate costs, but what is the impact on everyone else? Where is that analyzed? Turning to mortgages, since the secondary mortgage market has for 40 or so years facilitated the creation of massive wealth in the form of home equity, what is the impact of new regulation? Homes are one of the few things we still manufacture in this country but we will only make them if we sell them, and we will only sell them if we have long term credit and tax subsidies that enable people to buy them over many years. Last, the overly simple part: it's easy to describe a problem in a big system; it's not much harder to throw out a high level concept for change, like universal single payer insurance. What's really, really hard is to get concrete and show how the concrete proposal would play out and that it would result in a net benefit. The 2001 Himmelstein Warren article touches on this at the end by noting that even covering every person cannot be said to solve the the cost of health care unless you know what the coverage and exclusions are. That is the first of the really hard issues, because unless you mean to cover every bill without scrutiny (which no one seriously believes will happen because it is fiscally unsustainable, but is what the emotional arguments lead you to expect), you need to say what the principles for not paying are going to be, what the consequences for treatment are, what the overhead is to manage those rules, how will it be cheaper than the status quo, or, if it won't be cheaper, how much extra will it cost and how do you know that? The second really hard issue is establishing with confidence the effect on the care itself. All proposals and anecdotes I see, including those presented yesterday, assume that the care stays exactly the same but the cost goes down or gets spread more satisfactorily. Would it were true but it strikes me as implausible that the care will stay the same: if one believes that current methods of coverage are shaping treatment, it seems to follow that one would also expect a change in coverage to affect treatment, but one should then take on the burden of explaining how that would flow through the system.

The thing about both parties is highly misleading.  I'm aware that everyone takes donations and no mainstream politician is exactly leery of capitalism. But let's try to keep our expectations in line with the facts.

Who supported deregulation, in everything from the air traffic controllers to the environment?  Who supported privitization, especially of social security, but also backing school vouchers, handover of railroads, you name it?  Who handed out contracts in Iraq to cronies?  Who set up the K Street project?  Who revised the tax scheme with handouts to the wealthy?  Who doesn't want universal health care and cites cheap TVs as an excuse not to have it?  For that matter, who'd find even a middle-of-the-road position like Dr. Warren's to require disclosure of terms to be evil?  

And on and on.  And you can point to any Democratic presidential candidate for an entirely and explicitly opposite agenda. Look, it's fun to rant, and it's easy to be angry as anything about capitalism. But it's not just self-serving and self-righteous to turn it into a poltiical screed. It's also bad non-standard economics. We're supposed to be critiquing the free-market religion itself for how it jiggers the system and undoes democracy. Seems to me that even a Marxist who sees not forces like that but pollitical leaders would be derided for his "bourgeois" fallacy. 

John 

http://www.haberarts.com/

I hope you will forgive me for saying that we are indeed at the end of more than one paradigm but markets are less likely than ever to simply fail. Being $9 trillion dollars in debt, however, the death rattle of the safety-net paradigm is clearly audible. As Progressives we may only be able, at this late stage, to listen with sympathy and to try to save what can be saved.

The stories that Professor Warrren briefly recounts are part of a spectrum that includes that of Edith Isabel Rodriguez, the uninsured patients that have been dumped at one or another skid row, and many others. I volunteer at the Palanca Food Pantry, in Lake Worth, Florida, and have personally lived through government social services programs, their budgets cut year after year, stonewalling clients and (the old standby) losing the paperwork of clients who simply won't take the hint. Customer service numbers are universally useless. Florida is only one of many states that have an institutionalized system of low-wage labor halls that keep its unemployment rate and its wages depressed.

The witness statements to which Ms. Warren refers are part and parcel of the new paradigm we see at the pantry and in the political and economic news items each day. But all of those who are suffering can take comfort in the fact that FDR's hideous socialist programs have been largely dismantled and the remainder underfunded. Now unable to provide safety-nets we are in the early stages of the process of learning the advantages of the Hoover-ite approach to difficult economic times... and our massive wealth will remain in the hands of those with market savvy where it has always belonged.

The status quo and those in the middle class who want change are at opposing ends. This country continues to move further toward a two-tier society of ‘haves’ and ‘have nots.’ With the status quo claiming that the free markets work – this is not the case. The markets have not been working to correct themselves in regards to the abusive credit card industry practices and subprime mortgage impact. We are seeing the beginning effects of subprime throughout the economy that continue to have a ripple effect through Wall Street, beyond Bear Stearns - impacting more homeowners and industries dependent on the strength of the housing market.

If the investment pools had to shoulder some of the losses in bankruptcy for subprime like Prof. Warren mentioned in a previous blog entry, it would make those who in invest in subprime securities think twice about investing and provide more of a vested interest in both the profits and losses.

The status quo does not have a vested interest to change the laws in a system that is working for them and maximizing their profits. Changing the laws to strengthen the middle class that is losing out threatens the present power structure. They are against changing because they don’t want the masses, in this case the middle class, to rise up and start to diminish their power. The positioning is that it’s your problem, not mine, and a not in my backyard mentality. Arguments are used to maintain power including if you are in bankruptcy you must have overspent on frivolous items, if you don’t have medical insurance, you must not want it - to not needing regulation over financial products such as credit cards and mortgages because the market will correct itself.

We are on the verge of a bubble waiting to burst. I just hope the middle class can outlast the bubble.

I can't seem to find this study I stumbled across the other day. Apparently, the upward mobility of American society is not what it used to be. Today, one is more likely to do better than their parents if they are born in any number of European countries, including socialist bastions like Germany, France, and Scandinavia. Republicans seems to be unaware of history in this case, too. The period of our greatest upward mobility in this country was the post-WWII era, where new deal and other programs were strong and fully funded. Then another leap forward in Johnson's great society programs. Things maybe did get a little out of hand with poorly managed welfare programs, but the main economic hardship of that period was that the megalomaniac rich just couldn't get rich enough. I mean how can you go to sleep at night unless you knew you could live 50 lifetimes without ever having to work again.

Re: Being $9 trillion dollars in debt, however, the death rattle of the safety-net paradigm is clearly audible.

First time I've ever used profanity on this site, but: FUCK THE DEBT. Your defeatism about this simply buys into the Grover Norquist paradigm of drowning the government with red ink. And that makes you part of the problem not part of the solution.

As a nation the US is fabulously wealthy. There's more than enough loose change sloshing around the upper levels of the plutocracy to fund universal healthcare and a real social safety net. Other countries certainly manage to do so despite having nationmal debts that are, proportionally, larger than ours. Get a democrat in the White House and a more solid majority in Congress and we will have universal healthcare at the very least!
And for crying out loud which of FDR's programs have been dismantled in recent years? The largest and most important, Social Security, is still going strong, as popular as ever, and the attempt to tamper with it was the first nail in the Bush administration's coffin.

It seems that the problem is that with diffuse relationship between lenders and borrowers it is hard to create an institution that would cut deals with distressed borrowers that would minimize the losses for the creditors.

Mortgage servicing is a separate bussiness, and these guys can follow any kind of rules, harsh, lenient, whatever.

The mortages themselves are packeged into securities and repackaged, perhaps several times, and I think that some of the derivative securities have more risk and some have less. Probably the holders of the highest risk securities, in effect, the insurers of the mortage pools, would have a big stake in the most rational resolution, but with the ownership structure so byzantine, do they have influence on the rules of mortgage servicing?

do you know who are major players in this secondary market: South Korea. Yep, the SK's have been lapping up American mortgages as fast as banks could sell them. My loan officer basically admitted my loan would be sold within 30 minutes of signing -- to a South Korean company. This is probably one reason the markets got out of control. My guess is there are a lot of S. Korean investors that are hurting very badly right now.

Here. Is this what you are looking for?

Satellite Sky Blog

Find the Truth. Do Justice.

However, I'd say that this secondary market, which you aptly described as one that separates lenders from risk, is a big deal and needs to be dealt with now.

wouldn't this kill the pyramid scheme?

as far as I know, after the banks get the mortgages off their books, they're no longer constrained by the fractional reserve requirements; they also don't have to attract savers in a country that doesn't save!

in my eyes, elizabeth gets a little distracted and, instead of getting to the root cause, creates poster children.

To boldly go...

So perhaps one can make my point stronger: we have much smaller ratios of debt and deficit to GNP than Italy, Italy copes pretty well (or manages to survive, dependent whom you ask), so we are not in some "budgetary dire straits".

Doomsters usually tell how enormous are "real deficit is" (fundies of unfunded liability) and if we do not do something radical right now, in less that 10 years we will have to ... raise taxes! They sky will fall!

The Yamaha V-Max is pretty sweet too. And the Honda Goldwing rides like a rolling couch.

you left out one other important ingredient free markets provide: jobs.

Corvid

So does the public sector, which tends also to provide better jobs.

people can get swindled in any number of business transactions, which is why there are laws on the books to deal with these kinds of miscreants. Falsifying someone's signature may even warrant criminal prosecution. It is impossible to regulate for every possible type of scenario. I've worked in insurance (one of the most heavily regulated industries) and I can tell you all the rules don't stop fraud and abuse.

There is a problem with relying on private citizens to enforce the laws. It takes money, usually lots of it. Money that people who have been swindled don't have. Our legal system has been corrupted by the thirst for money and power. Our constitution has been reinterpreted by the courts, and the ones who have all the power are the attorneys and judges who run the system. Those who need to enforce the laws most can't, and greedy people know it. Money buys the best attorneys, the ones who know the judges personally and know the outcome before the litigation because they have determined it before they have had a full hearing of the case. I have personally experienced this as a small business owner, from both sides of the equation.

Jim Anderson

The Truth About Credit

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