Ice Skates on Sale in Hell
Hell has frozen over. I know this because the great conservative icon William F. Buckley has called for a mortgage moratorium. After prattling on for several paragraphs about the beauty of the market, he does a quick double axel and declares that we should have regulated the mortgage lenders and mortgage brokers much earlier. Now, he says, the federal government has no choice but to halt all foreclosures "until the disparity between true value and hypothetical value is pounded away by time and inflation."
I smell fear.
Bush has advanced two solutions--the mega-SIV and the Teaser Freezer for families with mortgages about to reset. Both are voluntary, and both are failures. In the meantime, the economy continues to slide into recession.
The federal reserve is playing its trump card, intimating another reduction in the interest rate, combined with a discount rate for the banks. But as Allan Sloan at Fortune points out, the Fed has lost its mojo. The banks aren't borrowing and lending because interest rates are high. The credit markets have frozen up because the banks don't trust other bank's books--or maybe they don't even trust their own. No one knows exactly how much bad debt is out there, and the fear is paralyzing the players.
Buckley demonstrates a new Practical Conservatism: Continue to praise the market, but support a big government intervention that might save the economy before everything has been flushed away.
I'm willing to go with Big Bill on his basic idea. Let's all admit that consumer credit markets need basic safety regulations in place all the time. Without those regulations, we are ALL put at risk, the reckless and the prudent alike. If this economy melts down, it will take us all, and that means we have a collective interest in sensible credit regulation.
Second, let's make the banks tell the truth. Right now the banks are asking for special dispensation to avoid telling how many bad loans they are sitting on. The story they are peddling is that it is "too hard" to add it all up. That's just an invitation to keep the market frozen in fear.
Third, let's hold off on that mortgage moratorium. Delaying all foreclosures until they can be checked for compliance with the law and offering ways to refinance mortgages might be sensible. But an outright ban on all foreclosures in all circumstances until market prices are back to "true value" seems a bit extreme. I'm glad to see Bill getting in touch with his inner lefty radical, but he is in dangerous territory with this idea.
The first two steps won't get us out of this mess, but they are good start. Lead on, Bill. I have my ice skates ready.
Woah!
Surely this signifies the End Of Times, for movement conservatism anyway.
Seeing as how this man was an original founding member, it would seem these statements repudiate the entire premise of the movement.
Finally.
Perhaps Buckley was "converted" by Huckabee and is afraid of going to Hell for his past misdeeds? :-)
January 15, 2008 10:33 AM | Reply | Permalink
Probably Buckley is watching the housing market tank in Florida, Virginia or wherever else he owns some property.
January 15, 2008 1:50 PM | Reply | Permalink
You got it. This is the same as the "freezer teaser." It's designed to prevent foreclosures, which sounds good, until you realize it's really just protecting banking and Wall Street. The outcome is to keep property values incredibly inflated, and keep debtors paying massive service on all those gigantic loans, basically in perpetuity, for properties vastly over appraised.
Why anyone would want to stay in a gigantic interest only loan for a property that's guaranteed to devalue, is just totally beyond me. Especially when they could just foreclose, and then buy the property back at 30% - 50% less.
Buckly isn't suddenly becoming a Progressive. It's a lie. The whole purpose is maintaining indentured service to mortgages.
The two best solutions for citizens are:
1) Legislation to reappraise property values at realistic rates and force banks to accept these new mortgage values, as culpability for inflating the bubble and predatory lending.
2) Allow massive foreclosures, which sounds terrible, until you realize it would immediately deflate the bubble, and the same people would be able to buy back their homes at much lower rates. Additionally they would have the combined political power to force through some consumer and debtor protections and relief, such as reforming Freddie and Fannie, and repealing the bankruptcy act of 2005, which is very pro-corporate and against the public good.
January 15, 2008 5:44 PM | Reply | Permalink
When you walk away from a mortgage you no longer have the credit rating needed to finance even an automobile purchase, let alone a house. So, those who do so cannot repurchase the same or any house for up to 50% less. Furthermore, housing prices are not going to drop by 50% - they never have, at least not for the last 60-70 years. The price drop is much closer to 10% than 50%.
Most people could continue to service their mortgage if they could do so at the terms they got when they first purchased the house. It is the interest rate hike and the amortization that is making the payments un-affordable. The most effective relief for the owners of those houses is a freeze on the payment schedule at the amount they originally paid.
Hoppy in Sacramento
January 15, 2008 6:25 PM | Reply | Permalink
lol. You're totally not getting it and misunderstand some economic principles.
First of all, capitalists need to invest. The mortgage industry isn't going away.
Secondly, the ultimate power over monetary policy, is political; even though people usually lack common cause to exercise it decisively.
Third, credit is a relative thing. I.e. if person A defaults, and person B doesn't, then B has a higher or preferable credit rating. However, if mortgage holders default en masse over a short period, they're still relatively equal.
Lastly, present mortgage holders still have as a group the highest income and are the best loan candidates in the market. In fact they're some of the most productive people in the world. And they vote and if PO'ed enough will seize monetary policy.
So make no mistake, there will be new home loans to them, no matter what.
January 16, 2008 1:26 AM | Reply | Permalink
Unless we hit Depression-era levels of unemployment (which isn't impossible but less likely) most mortgage holders will _not_ default. Even in the 1970s the actual default percentages were not that high. Most people, particularly those who bought prior to 2000, will just sit tight making their mortgage payments. If 70% don't default and 30% do then the 30% are absolutely going to take a big hit on their credit rating. And credit ratings today affect job searches and health insurance as well as credit.
sPh
January 16, 2008 8:49 AM | Reply | Permalink
I agree. Those who default will end up only being equal to each other, which won't help them much, or contribute much to the hoped for big-picture equalization.
Developing a loan product that allows/forces lenders to rewrite mortgages based on current values, at reasonable interest rates, and using the credit score that the borrower had at the time of the original loan would be very effective. But it's a tall order, with a lot of potential objections.
January 16, 2008 9:05 AM | Reply | Permalink
No, that's factually incorrect and again a basic misunderstanding of politics and economics.
In some areas like parts of SoCal and Florida, prices have already fallen 40% as large numbers have defaulted. And it's a self reinforcing phenomenon becasue as more people default the lower prices drop, then encouraging others to, and so on.
It's really very simple: why would an entire generation want to give their paychecks to money lenders to pay for homes which are only depreciating in value? That's the definition of indentured servitude. It's also a a mortal attack on the American Dream and our belief in the merits of capitalism. If large numbers of people lose thier homes and are stuck with lousy credit ratings, in short order there will be an economic revolution to whihc the New Deal would pale by comparison.
For example, current monetary policy is to print money on need, and then loaning it to banks who then loan it to people at profitable rates, and who deliberately ratcheted up the housing bubble. A PO'ed voting base could change that to have the government print money and loan it directly to home buyers at low rates.
That's the sort of thing Buckley fears. That's why the lenders are terrified there will be massive defaults and politcal blowback.
Again, that's a mistaken understanding of economics and democracy.
Once a critical mass of people default, say 30%, then it drives up inventory so high, and prices down so low, that massive numbers more will also default.
Additionally, once a critical mass of people default, and we're talking about an entire generation of home buyers here, then the politcal momentum to change lending practices and monetary policy becomes unstoppable.
January 16, 2008 3:18 PM | Reply | Permalink
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Now, what is "the bulk"? It is 80%? 70%? That would require some detailed research using data that I suspect is not reasonably available. There is no question that 30%, 20%, even 10% default and eviction would be a terrible calamity. And there is the possibility that in a severe recession that the non-speculators could lose their jobs and ability to pay. But the idea that the entire population of the US is about to default on its mortgages and jingle-mail away is silly. As I said, even in the late 1970s, which were far worse than we have seen so far, the absolute numbers of people actually turned out of their homes was not so high.
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sPh
January 16, 2008 4:50 PM | Reply | Permalink
Re: Once a critical mass of people default, say 30%, then it drives up inventory so high, and prices down so low, that massive numbers more will also default.
I disagree. If you look at the stats, the rise in defaults is pretty much limited to people with ARMs, especially subprime ARMs. There's been no spike in defaults among people with fixed rate loans. People default because they cannot afford to pay their payments (duh). If the payments are affordable then they continue to pay them. There probably is some risk that speculators might dump their properties via foreclosure if prices fall too low, but actual homeowners won't for the simple reason that they need a roof over their head and no one in his right mind wants the sherrif toting his belongings out to the surb in a foreclosure.
January 20, 2008 5:31 AM | Reply | Permalink
sphealey ---
While kozmik's view that it's 1789 and les hypothécaires sans culottes are readying themselves to storm JP Morgan Chase World Headquarters seems a bit overwrought, I'm not sure that your analogizing the 1970s to today's situation is valid.
The 1970s -- the entire decade up until Volcker slammed the door -- saw rapid and sustained home price inflation. Nevertheless, because nominal wages were also rising rapidly, the ratio of price to family income stayed pretty much constant. And too, few of the more exotic forms of mortgage financing (ARMs, option ARMs, Alt-As, etc.) were operating.
Thus, 1) it was a great time to be a debtor; 2) inflation bailed out fixed-term mortgagors; and 3) home ownership was truly the middle class path to security.
January 16, 2008 5:15 PM | Reply | Permalink
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In retrospect, those who survived recovered by 1990 and eventually did OK. At the time however it wasn't clear that things wouldn't keep going down forever.
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Now on the coasts the situation was different I will agree.
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sPh
January 16, 2008 7:14 PM | Reply | Permalink
Thanks for giving us the Republican talking points, as usual. I'm sure Ellen will chime in soon too.
January 17, 2008 10:47 PM | Reply | Permalink
Re: In the central Midwest, where jobs were being lost by the millions and the value of savings was eroding far faster than raises which the union could no longer obtain for those lucky enough to still be employed, not so much.
The Rust Belt did not start to rust until the Volcker interest rate increases that precipitated the recession of 1980. All through the 70s employment continued strong (with the exception of the recession of 1974). It was under Reagan that states like Michigan began to bleed jobs.
January 21, 2008 6:35 PM | Reply | Permalink
Re: It's designed to prevent foreclosures, which sounds good, until you realize it's really just protecting banking and Wall Street.
By making them sit on non-performning loans instead of taking over the property and selling to regain at least some of their money? Um, that makes a lot of no sense. This won't prop up property values because people who have to sell for some reason or other will still have to come down in price in order to unload their houses; buyers have already shown they will not pay the current asking prices. But even if it did have that effect that hardly helps any mortgage holder since they can't sell a house they can't foreclose on and meanwhile they have nothing coming in at all on it.
January 15, 2008 6:41 PM | Reply | Permalink
lol. Big hole in your math and logic. They're not getting "the money back." That's impossible. A sale requires a seller, and a buyer.
Who are going to buy those homes? A) The same people who just lost them with new loans, B) mngt companies, C) foreign capital, D) nobody. B, C, and D would be politically cataclysmic and create a huge politcal movement to seize monetary policy, which would also usher in something akin to the New Deal on steroids.
There are going to be home loans, no matter what.
btw, in some areas such as parts of SoCal it's already dropped +40%.
January 16, 2008 1:28 AM | Reply | Permalink
The mortgage crisis came on because our free society did not think to intervene at a juncture where it could have limited the effects of cosmic thoughtlessness and insouciant greed. William F. Buckley
Dorothy Day (or for that matter, John Henry Cardinal Newman) couldn't have said it better.
January 15, 2008 11:24 AM | Reply | Permalink
So society is to blame for failing to presciently save the rich and powerful from their worst impulses?
Sounds good to me. Isn't that what guillotines are for?
January 15, 2008 6:04 PM | Reply | Permalink
"Toute nation a le gouvernement qu'elle mérite."
January 15, 2008 6:41 PM | Reply | Permalink
This would just open the gates for more scams, something Americans, especially Republicans are very good at doing. I can see characters like past fraudsters Neal or Jeb along with Republican connected Cuban organized crime types in Florida buying up the paper on houses/condo's on the cheap, not paying anything on the mortgages to the banks (which they control too and from which they will file for federal compensation of some sort), and meanwhile renting out the properties while spending little or nothing on upkeep or taxes.
January 15, 2008 11:52 AM | Reply | Permalink
Isn't that the sort of thing...... FDR would have done? The horror, the horror.
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sPh
January 15, 2008 12:18 PM | Reply | Permalink
No, actually it's just the opposite.
What they're advocating is keeping mortgages from foreclosing, which will actually have the effect of maintaining inflated property values and keeping these people in massive debt in near perpetuity.
As counter intuitive as it may sound, the best thing that could happen to all these debtors is for them to all foreclose simultaneously and dump a huge amount of property on the market, drastically lowering prices, and then buy back those same homes at greatly reduced prices.
January 15, 2008 5:28 PM | Reply | Permalink
No one is going to loan that much money again to a family that walked out on a mortgage that recently. Unless you pass a law to price control all housing, and to force banks to loan to anyone requesting a loan, foreclosures are of no benefit at all to current home owners now in trouble.
Price controls on houses is a losing game - impossible to write rules for, and equally impossible to enforce. Sometimes the market just has to rule. The problem that needs correcting is the appraisal process, where appraisers use the price agreed to between the buyer and the seller as the appraised value. State licensing of appraisers should have prevented that.
Hoppy in Sacramento
January 15, 2008 6:45 PM | Reply | Permalink
Not so. They wouldn't have any choice but to do so.
If they didn't then the consequent political unrest would radically change monetary policy and produce a New Deal on steroids.
January 16, 2008 1:11 AM | Reply | Permalink
"produce a New Deal on steroids"
So how soon can we start? Sounds like a wonderful plan.
January 16, 2008 5:25 AM | Reply | Permalink
The most important issue is what you left out of your quote: Monetary Policy.
Our government prints money and gives it to banks at low rates, as well as secures them. That's politically tolerable only on the premise they do so in the interest of the public. If they create predatory politices and inflate bubbles, which they have, and if they refuse to provide real relief, which they are, and if they threaten to punish consumers for the mess banks created, which they are threatening, then the whole rational fir present day monetary policy is void.
Also important is to recognize the lending industry's strategy for what it truly is. They want, in fact the NEED to keep people locked into huge loans, and they NEED to keep the bubble inflated. There will be "freezer teasers" and other stop gap attempts, which are basically designed to pick people off one by one, while keeping the rest in massive debt.
January 16, 2008 4:20 PM | Reply | Permalink
OK, bright fella. Here's your chance to earn your airtime. I happen to own one of those houses and have one of those loans. It's a duplex, and recent demographic upheaval in my area has made it very difficult to rent so I am behind on payments. My neighborhood is emptying out and flooded with abandoned and sometimes vandalized houses that can't be sold.
Let's call up my bank, tell them that they need to resell my home to me at a lower price, and threaten the person at the other end of the phone with consequent political unrest that would radically change monetary policy and produce a New Deal on steroids.
**
While I agree that reselling houses to their current owners is a good solution to the problem, you would have to work out some details, like how to deal with the fact that post-bad-loan customers have ruined credit and are upside down on equity. No one has released banks from their obligations to underwrite loans, so current homeowners don't qualify for the mortgages that would get them out of the mess.
Another problem our neighborhood group has identified is that properties near or in foreclosure include "nice" owners trapped in bad situations, and "not nice" owners that we wish would get out asap. (Once overextended, investors who bought property dropped their standards for tenants and that's just not good for block safety.)
So, please come up with a specific, workable plan that can be applied nationwide, accounts for changes in buyer qualifications, and works for people who have more than one property, for example, a home and a cabin, or who purchased property as an "investment."
January 16, 2008 6:38 AM | Reply | Permalink
What is that supposed to mean? Anywhoo...
Regarding your situation as you describe it, sorry. The only consolation is you have millions of people on your side, and they know many tens of millions more people who are sympathetic. Together you can get some relief. Keep in mind even Huckabee, the Republican, is campaigning on economic populism.
But make no mistake, unless there is major politcal change and Progressive reform on debt, mortgages, and things like credit ratings; at best you and many millions more can hope to hold on by your finger nails, while servicing the debt, and probably headed towards defaulting anyways as property values continue to drop.
What's going to happen is the short term is banks will attempt to keep you on the hook, offering one refinance after another, and passing legislation while Bush is in office to keep people in those mortgages. Lenders essentially need to pick people off one by one, so they can keep inventory low, and the bubble inflated as much as possible. At least till a tipping point where enough people have already defaulted, and the housing market so depressed, they may as well just gut the market and push the rest over the edge and go into the credit card business.
To explain that in a bit more detail:
The refinances and "freezer teasers" are designed to keep people on the knife edge of defaulting to be maximally profitable. What good is a temporary freeze in a declining economy? Less than none.
Even if you fend off defaulting for a bit, a couple years from now the economy will be in worse shape due to structural problems that are already inevitable. If you lose your job, or can't rent it, or just have troubles due to the economy such as inflation of consumer goods due to a falling dollar and monetary supply, then you'll still be in danger of defaulting.
Soon the refinancing options will dry up as it becomes more profitable just to gut the market rather than string people along. At which point you're likely to default with millions of others, and take those credit hits. And at that point more money will have been printed, and loaned to people economically devastated and trying to "rebuild credit" by using: credit cards. Coming and going.
Again, the whole goal of lenders is to prevent anything from happening en masse, prevent any politcal movement en masse, and keep the present rules of the game they've totally rigged.
***
You'd be better off to default now, and rent it for less. Make no mistake, you're being set up for that eventuality anyways, or for perpetual debt if you manage to hang on by your fingernails.
Buy it back at a far lower price once there is economic relief from political change. Your credit rating will take a short term hit, but that's incentive for you, and many tens of millions, to work for Progressive political change, monetary policy and finance regulation, to have that erased. Which if enough people get PO'ed is actually a lot easier than you may realize. It's what happened in the New Deal as well.Well, there was legislation discussed here which would simply appraise homes and issue new mortgages at adjusted rates. So, no damage to credit ratings. that's the best solution, and very doable, if people fight for it. If not, we're headed for massive defaults one way or the other, slow on banks terms, or fast on consumer's terms.
On "credit scores" you should be aware they are a product of the banking industry, designed for their profit, not yours. It's also a form of collusion and monopoly, which is why it's regulated to dictate what is fair and not fair basis of rating. And of course our government prints the money and secures the banks, so they must comply. The reasons regualtion is currently so weak is due to a laissez faire trend thanks basically to Reagan, Bush, Clinton, Bush. That is changing though.
Lastly, it's our government's monetary policy which prints the money and says where it should go. Right now it goes to private banks. But with political backlash from the housing bubble, Freddie and Fannie could be revamped to provide home loans directly to consumers at low rates, regardless of defaults in the housing bubble.
Millions of people defaulting, tens of millions of families getting hurt, it will be very powerful political coalition to pass some relief and credit regulation and make banks and monetary policy work for consumers and the middle class. Thanks to the out-of-control greed of lenders, credit cards, housing bubble, etc. there is a big Progressive political backlash coming. Even Huckabee is campaigning on economic populism.
Which is what people like Buckley really fear.
January 16, 2008 4:26 PM | Reply | Permalink
Someone's been watching too much "Boston Legal."
January 16, 2008 10:44 PM | Reply | Permalink
Actually, Buckley's always been a kind of likable, practical conservative. He believes in individual freedom and individual choice but also believes that we're all in this country together and so sometimes compromises must be made.
He's been a conservative apostate before. He's for legalizing pot and was against the war in Iraq. This is no shock.
thosethingswesay.blogspot.com
January 15, 2008 12:24 PM | Reply | Permalink
Yup. Between TheoCons and NeoCons sits the BuckleyCon.
January 15, 2008 12:40 PM | Reply | Permalink
If you must attend a Con party, attend a BuckleyCon party. You're at least most likely to get the best drinks and finger foods. The theocons drink Budweiser, the neocons drink stale Heineken and they both eat cheet-os for different reasons.
thosethingswesay.blogspot.com
January 15, 2008 2:00 PM | Reply | Permalink
He is not being that inconsistent. Conservatives generally seem to argue for the privatization of profits and socialization of losses anymore.
Satellite Sky Blog
Find the Truth. Do Justice.
January 15, 2008 3:42 PM | Reply | Permalink
Exactly. Conservatives have never had a problem with government intervention so long as the rich don't have to pay for it. Considering how well they have increased the regressivity of all forms of taxation in the U.S., now is the perfect time to act before Democrats can expire the Bush tax cuts. It's as though Democrats don't remember it was Bush and a Republican Congress that enacted Medicare Part D--something the Democrats had been trying to do since LBJ! Of course, Medicare is funded by highly regressive payroll taxes. We have got to stop believing the GOP's propaganda.
January 15, 2008 6:25 PM | Reply | Permalink
The sub-prime crisis has ridden on the back of greed, sometimes from the home buyers, but always from the mortgage brokers, through the securitizers, bond raters, and the banks, who thought they had discovered gold: high returns and AAA bond ratings!
All these fall in the professional financial sector where, you would think and hope, expertise would have forewarned.
The profits were funded out of over-extended buyers and those left holding the not-exactly-AAA bonds. The professionals are the ones who should pay to clear up this predictable mess.
This requires a shift of capital from the exploiters to the exploited.
It's a good argument why corporate officers should not be protected by the entity. When individuals and resigning presidents still walk away with tens or even hundreds of millions of dollars for destroying peoples' lives and decimating shareholder equity, I would like to see what the remaining officers are paying themselves!
At the moment, the absent-oversight free-market bird has come home to roost but the manipulators, profiteers and blind overseers are not being punished.
And it's not all about caveat emptor. Even in car sales there are consumer protections. Someone just decided to supress all caution and safeguards in the housing market -- almost everyone's single largest purchase.
It's all obfuscation for the sake of failed ideology.
January 15, 2008 8:39 PM | Reply | Permalink
All these fall in the professional financial sector where, you would think and hope, expertise would have forewarned.
"It is difficult to get a man to understand something when his salary depends upon his not understanding it." Upton Sinclair
January 15, 2008 8:37 PM | Reply | Permalink
January 16, 2008 1:52 AM | Reply | Permalink
When his personal fortune gets wiped out by a wholesale drop in real estate values, he'll be in another government tenement, just like the rest of us...pass the free processed cheese, Bill?
LOL
January 16, 2008 11:24 PM | Reply | Permalink
If one cannot pay for a house, the mortgage holder will foreclose and the house will be sold to the highest bidder. If the price obtained does not cover the amount owed to the mortgage holder, then the original debtor still owes the remaining balance. And, by that point, the mortgage holder will have added severe penalties, added interest, and fees, including legal fees. Therefore, it will not work to default then buy one's own house back at a reduced price. In the past, banks would sometimes take a house back in lieu of the debt, but they are under no obligation to do so, and would always reach back to the homeowner if their collateral proves insufficient.
January 17, 2008 8:53 PM | Reply | Permalink
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sPh
January 18, 2008 4:38 AM | Reply | Permalink
Re: If the price obtained does not cover the amount owed to the mortgage holder, then the original debtor still owes the remaining balance.
While this is true in principle, in practice the unpaid balance is generally charged off. However, you are correct that mortgage holders will not sell the house back to the original buyer (whose credit has just been ruined) at a lower price
January 20, 2008 5:51 AM | Reply | Permalink
Almost everything has increased its prices. What if time will come,wherein all goods are no longer affordable to consumers?Ever thought about using Forex trading? Forex trading is using foreign exchange, in other words currency trading. How it works is that you put in some cash advances in one form of currency, exchange for another or several others and wait for the value to either drop or increase. Then, once conditions are to your advantage, you reconvert back to the original currency for profit. You could double the money you put into the market. Typically you start with dollars (American), pounds Sterling (British) or Euros (Europe...obviously) and watch it for a few days. Profits skimmed from your Forex trades could keep you from needing cash advances for awhile.
April 7, 2009 6:41 AM | Reply | Permalink