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February 22, 2009

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It sounds to me that the objections to the plan were pretty much in place before the plan was announced.

No sense letting the facts get in the way of the story, you know....

Here is how it's going to work. Clever mortgage agents will find appraisers who can magically value the home (any home) at between 80% and 105% of the outstanding mortgage. Ding. Fannie Mae will buy it. There will magically be no one who is more underwater than 105%.

Couple the fed money spent on parts 1, 2 and 3 with the news that Obama is going to trim the deficit by raising taxes on anyone who makes over $250k and suddenly we have a really big dollar amount coming out of the pockets of approximately 10% of taxpayers.

Let's see, $1 trillion deficit per year x three years = $3 trillion divided by approx 15 million taxpayers = $200,000 per taxpayer. We're starting to talk about real money.

Liberal spender: "But they need help you selfish bastard."
Me: "Yeah, right. That guy on the corner with the monster truck and ski boat who boasts about not paying his mortgage in six months needs help. And I, the one who faithfully lives BELOW my means and who invests in job creating business projects, get to pay ALOT extra because he needs help. Fuck him. Let him default and rent for awhile. How is that going to hurt him? He should have been renting anyway. And so what if the bank has an empty house on their hands. They'll either sell it cheap to someone with actual money (imagine that) or they can rent it out. What is so bad about that? People have been crying for years how housing is not affordable. So let it slam down and be affordable. These are not difficult concepts.

These aid plans are all political vote buying. They're not based on economics.

So far the only argument that I have seen against Obama's plan is emotional rather than rational: those people are bad! Don't give my money to those bad people! Weird how the people making this argument know all those other people well enough to judge them.

As for soaking the top 10%: good. Wealth does not trickle down. It flows up. Job creation does not happen by cutting taxes for the rich . Job creation comes from putting more money in the pockets of the wide swathe of the not rich consumers who then spend the money thereby expending the markets for the products and services of the people who own businesses, thus enabling those business to expand.

"A lot" not "alot". Yeah, I know, criticism from the Queen of Typos.

"It does, however, exclude people who will not commit to staying in their home -- e.g., speculators and flippers."

You know, people CAN end up not being able to live in their home any longer for perfectly innocent reasons... such as losing their jobs and having to move out of state to find employment, but not being able to sell the house because the real estate market imploded the month after they moved.

I wish I could still live in my house. I really do, it's a very nice house I built with my own hands, on the land I grew up on as a child. I miss the trees I planted as a kid, that will be big enough for my infant son to climb in a few years, the orchard that's just starting to produce, the woods out back that are lousy with deer. Waking up to see a loon standing in the pond, I'll never do that again.

Planned to live in that place for the rest of my life, and be buried there. Now I look at listings for 800 square foot mobile homes with mold problems, and wish I could afford one...

Don't assume that anybody who doesn't live in their house is a "speculator and flipper".

Couple the fed money spent on parts 1, 2 and 3 with the news that Obama is going to trim the deficit by raising taxes on anyone who makes over $250k and suddenly we have a really big dollar amount coming out of the pockets of approximately 10% of taxpayers.

See, the problem here starts with the fact that you actually think that 10% of US households make more than $250,000 a year, when the actual number is 1.5%. Hell, only the top 5% make over $157,000.

"Yeah, right. That guy on the corner with the monster truck and ski boat who boasts about not paying his mortgage in six months needs help.

Can you provide a cite for the exact percentage of the people affected here that can fairly be characterized like this? Thanks in advance.

The obsession with locating the "deserving poor" generally flows from an assumption that none of them are, that the poor are all the victims of their own irresponsibility, and that they are, thus, "lucky duckies," living off of the wealth (and, ipso facto, merit) of the rest of us (i.e. subscribers to the Wall Street Journal).

Brett: as I noted in the post I wrote after this one, no screening mechanism is perfect. We won't be able to ensure that no one who doesn't deserve help gets it; we won't be able to ensure that no one who does deserve help isn't excluded. The best we can do is put in place policies that get the best balance of (a) approximating the right decisions and (b) not being incredibly expensive and/or intrusive.

d3: note that the posting rules forbid profanity. Note as well that while the plan as I've seen it does not specify who gets to hire appraisers, if part (a) is like any other refi I've ever heard of, it will be Fannie and Freddie, not the homeowner, who hires them. And while it would be in the homeowner's interest to falsify an appraisal, it's not in Fannie and Freddie's.

The difficulty I have with the housing plan is understanding where the government involvement has impact that would not or could not happen in its absence.

Where I do see a positive impact is the piece where a subsidy facilitates refinancing loans that currently have terms far out of line with current market rates and where the homeowner cannot go into the market without help because of the drop in the home's market value prevents qualifying and where the homeowner has income, makes mortgage loan payments, and expects to continue to use the house as a personal residence. These are situations where homeowners can benefit from help and there is little incentive for lenders to act.

Where homeowners have lost their source of income to make payments, I don't see how they can be helped except by restoring that source. This results in foreclosure.

Where homeowners who still can pay but have incentive not to pay because the home value is less than the loan, it seems to make sense for the lender to re-negotiate the principal with the borrower rather than have the borrower walk away. Does government involvement help here?

//So far the only argument that I have seen against Obama's plan is emotional rather than rational: those people are bad!//

Way to flip it wonkie. Rational is where people get to keep their own money and take the consequences of their own unfortunate decisions. Emotional is where Liberal Spenders forcibly take from some (by action of new laws) in order to feel like they've helped 'those poor unfortunate ones'.

//See, the problem here starts with the fact that you actually think that 10% of US households make more than $250,000 a year, //

You've missed my point entirely. If you divide by 1.5M instead of 15M then the burden on each becomes $2,000,000 instead of $200,000. I knew I was being conservative with my estimate of $200k and so didn't bother to look it up. So what. The difference favors my argument. Obama is trying to salve the deficit fears of the majority of people by suggesting 'the rich' will bear the whole burden. It's impossible! How is that guy earning $250,000 going to manage paying an extra $2,000,000.

//Can you provide a cite for the exact percentage of the people affected here that can fairly be characterized like this? Thanks in advance.//

No. Can you do the reverse? So it's a meaningless question thrown out there to suggest you have a point when you actually don't.

//The obsession with locating the "deserving poor" generally flows from an assumption that none of them are, that the poor are all the victims of their own irresponsibility, and that they are, thus, "lucky duckies," living off of the wealth (and, ipso facto, merit) of the rest of us (i.e. subscribers to the Wall Street Journal).//

Deserving/undeserving what does it matter? You and people who agree with you can write all the checks you want for the poor - out of your own checkbook. Why do you insist on writing checks out of my checkbook? (This from a guy who has systematically given at least 15% of my income to charitable causes during my entire life and over $500,000 during the last two years).

The hypocrisy is astounding. I believe that statistics have shown that conservatives give in higher percentages than liberals (No, I don't have a cite Phil. Look it up yourself.) Liberal Spenders like to feel like they are helping but they insist on helping with other people's money.

//The best we can do is put in place policies that get the best balance of (a) approximating the right decisions and (b) not being incredibly expensive and/or intrusive.//

The best we can do is stay out of it.

// it will be Fannie and Freddie, not the homeowner, who hires them. And while it would be in the homeowner's interest to falsify an appraisal, it's not in Fannie and Freddie's.//

Fannie and Freddie never hire the appraisers on individual homes. The loan originator does. The loan originator's job is to get the deal done. Fannie and Freddie, who are now fully owned by the government and have no need to make a profit, have the incentive to refinance loans. Their bosses, congress and the president, are telling them that is their job. Why would they care about the appraisal? Finally, falsify is not what will be done. There will be comps above and below the target number. The appraiser will artfully weigh each and come up with whatever reasoning he needs to accomplish what everyone (borrower, originator, fannie, congress, president, appraiser, you) wants.

Good intentions meet unintended consequences. Liberal: but we meant well and we tried - that's all that can be expected of us. Conservative: Stay the [expletive deleted]l out of it.

"How is that guy earning $250,000 going to manage paying an extra $2,000,000."

Since you're completely making up this fantasy, which doesn't reflect Obama's plans, the question need not be answered. So it's a meaningless question thrown out there to suggest you have a point when you actually don't.

When Obama proposes this, get back to us.

d3: one of the things about living in a democracy is that sometimes you end up spending money on stuff you don't like. Personally, I could have done without that whole Iraq war thing. Sad to say, my views did not prevail, and the cost will be more than Obama's housing plan by orders of magnitude.

(This from a guy who has systematically given at least 15% of my income to charitable causes during my entire life and over $500,000 during the last two years).

Remember, political candidates should not be counted as charitable causes.

Also,some punctuation problems. This should read

Conservative, stay the [expletive deleted]l out of it.

//Can you provide a cite for the exact percentage of the people affected here that can fairly be characterized like this? Thanks in advance.//

No. Can you do the reverse? So it's a meaningless question thrown out there to suggest you have a point when you actually don't.

You brought it up. If you can't support it, don't say it.

Phil
I've ordered this report so that I can cite it for you in the future.

http://www.fraserinstitute.org/researchandpublications/publications/6511.aspx

Good for you. In the meantime, don't say dumb stuff then get pissy when other people ask you to support it. Ain't my fault you can't back up your claims, it's yours.

I believe that statistics have shown that conservatives give in higher percentages than liberals (No, I don't have a cite Phil. Look it up yourself.) Liberal Spenders like to feel like they are helping but they insist on helping with other people's money.

I bet if we were to look into this, conservatives as a group write more checks because they have more money; while liberals actually go out and, you know, DO stuff in their communities via charitable organizations. But it's funny to see a conservative pat his own back on the basis that simply throwing money at a problem solves it.

//d3: one of the things about living in a democracy is that sometimes you end up spending money on stuff you don't like.//

Yes, it is a true statement. I understand that I will be paying for some things that I don't agree with. Yes, the Iraq war is an example of such a thing. We agree.

Are you using that as an argument for why Obama's housing plan is a good policy? Or are you using it to salve your conscience for taking my money and giving it to that guy over there. Are you writing a check yourself and giving it to that guy over there? If the budget deficit is balanced on the backs of the people earning over $250k (which is not possible) then you won't be paying for the Iraq war that you complain about. (Maybe you are. I have no idea how much you make). Your arguments look a little bit like Red Herrings to me.


//Remember, political candidates should not be counted as charitable causes//

Yes, exactly. I don't count them. Do you?

You mean red herrings like " That guy on the corner with the monster truck and ski boat who boasts about not paying his mortgage in six months needs help?" Or is that an example of a well-supported, useful argument, rather than a red herring?

"Are you writing a check yourself and giving it to that guy over there?"

She's done it for me.

//I bet if we were to look into this, conservatives as a group write more checks because they have more money; while liberals actually go out and, you know, DO stuff in their communities via charitable organizations. But it's funny to see a conservative pat his own back on the basis that simply throwing money at a problem solves it.//

I bet when liberals say they DO stuff in their communities they are referring to the political action they did like: walking for AIDS, or protesting, or agitating for political action on some cause. Those DOINGS are nothing. Do you actually feed the hungry, clothe the poor, house the homeless. Political action is NOTHING but agitating for someone else to do those things with someone else's (my) money. And then you will sneer at me as you have just done if I point out that I am paying for it through taxes, and through volunteer giving atop that, and by actual deeds on the ground: I have built and continue to subsidize over 150 housing units for families earning less than 50% of the median income. the project I am presenting to the Town Manager next Wednesday proposes setting aside 20% for very-low income families and 20% for moderate income families. (That's 160 new units for 'poor' families with identical sizes and features to the 240 market rate units I'm proposing.)

What are you doing that is 'good' this week Mr. Snarky Phil-with-a-dictionary,-thesaurus-and-logic-text? Enjoy yourself with your liberal buddies down at the PAC while you tell them how you pointed out the grammar mistakes of a selfish conservative as a substitute for defeating my arguments with reason and common sense.

//You mean red herrings like " That guy on the corner with the monster truck and ski boat who boasts about not paying his mortgage in six months needs help?" Or is that an example of a well-supported, useful argument, rather than a red herring?//

Do you want his name and address? I can get it. He came to an open house I was at three weeks ago on Dogwood Street. He lives just up the street. He even told me about the big screen the bought with the mortgage money he'd been saving.

Fraser Institute

Remember, that also doesn't count as a charitable cause. I'd also point out that any costs involved in letting your drug dealing tenant stay and the depression of property values of your properties does not count towards your $500,000 figure.

I'm also fascinated by the math on this one
This from a guy who has systematically given at least 15% of my income to charitable causes during my entire life and over $500,000 during the last two years

So has the past two years been over and above your 15% or has money been tight, and you've donated only $500,000? Regardless of which one it is, you may want to channel your largess in helping all those charities that Madoff's scam screwed over, as it has a lot more to do with what you propose than it has to do with what liberals propose.

//I'm also fascinated by the math on this one
This from a guy who has systematically given at least 15% of my income to charitable causes during my entire life and over $500,000 during the last two years//

It's not the math, it's the english: s/b "life INCLUDING over..." rather than "life and over..."

// does not count towards your $500,000 figure//

You just can't believe someone would spend actual cash money this way do you? It doesn't fit with your probably marxist beliefs?

// you may want to channel your largess in helping all those charities...//

Thanks again, Mr. Liberal Spender, for telling me how to spend it. I know it makes you feel like you've done it yourself if you can tell me how to spend it. I also noticed that you threw that in just in case your prior efforts to minimize and discredit the amounts failed.

I'm perfectly willing to stipulate that conservatives likely give more money than liberals directly to charities.

It's besides the point. Private charities don't come remotely close to meeting the minimal needs for shelter, food, and medical care, for those without it, in our society, and never will. They're structurally incapable of raising anywhere close to the money needed.

So the likelihood of greater charitable donations by conservatives means is meaningless in terms of what needs to be done politically to have not just a minimally decent society, but one that actually pays the least necessary in taxes, since, as I keep pointing out, it's far cheaper to spend on prevention of problems than it is to throw money at them later.

Actually, dummy, I volunteer at the Cleveland Food Bank, among other places. Please make sure you keep writing checks, though, while those of us who actually DO things make sure it gets to the right people.

And it's pretty funny that you think that the AIDS walk doesn't actually do anything, since those kinds of events usually involve fundraising on the part of the participants. I should know, as I've both walked in the AHA HeartWalk and given money to participants in the Breast Cancer 3-Day, the MS Walk, and other such events over the last several years.

So, is money and fundraising important, or isn't it? Make up your freakin' mind, dave!

I've never been to a protest in my life, though, so that's pretty hilarious. I wouldn't count on a second career as a psychic, if I were you.

Do you want his name and address? I can get it. He came to an open house I was at three weeks ago on Dogwood Street. He lives just up the street. He even told me about the big screen the bought with the mortgage money he'd been saving.

Awesome. What does he have to do with Obama's housing plan as a general proposition?

I do have to say that watching you flail around so angrily, completely unable to make a coherent argument, and characterizing me as some kind of political agitator, and lj as a Marxist, is the best entertainment I've had all week, and that includes this week's episode of LOST.

You just can't believe someone would spend actual cash money this way do you?

No, I can believe that someone could do this. I just think that you probably don't, except as some complicated tax write-off for your property empire. Speaking only for myself, your previous expositions on your tax situation that were exploded by several on the list made it so I really can't take claims of 15% over your lifetime as being rooted in some sort of honest accounting. Of course, if you were really being honest about your charity, I rather doubt you would be using it as a rhetorical cudgel, though other's mileage may vary.

//So the likelihood of greater charitable donations by conservatives means is meaningless in terms of what needs to be done politically to have not just a minimally decent society//

Uh...personal action is meaningless? All that matters is political action? Sigh...different planets...we are from different planets...

//I just think that you probably don't, except as some complicated tax write-off for your property empire. //

Because I express right leaning political views instead of left leaning ones? Is it immoral to take a legal tax deduction? I pay all my legal taxes and give 15% of my pretax income to charity besides.

Your ideology requires you to dismiss me, not hear me, assume I am alone, an aberration. Professor says "it's anecdotal, unsupported with documentation, and therefore inadmissible as evidence." Marx spits on it. What does Buddha say? Does he say take from that one and give it to the other one? Or does he say give to that one from your own pocket?

Do you want his name and address? I can get it. He came to an open house I was at three weeks ago on Dogwood Street. He lives just up the street. He even told me about the big screen the bought with the mortgage money he'd been saving.

Behold: the Welfare Cadillac argument.

You *supposedly* met *one* guy who *claims to be* gaming the system, so the whole thing has to be thrown out.

"Anecdote" is not a synonym for "data".

At some point, the cost of preventing fraud & waste becomes more than the cost of just paying for it. Credit card companies budget for a certan amount of fraud; they could easily reduce the amount of fraud but it's not worth it to them.

In my own jaundiced view, "undeservintg" is a synonym for "black".

"Uh...personal action is meaningless?"

No. That's not what I said.

"All that matters is political action?"

No. That's not what I said.

To rephrase what I said: private charity could never rise to the level of supporting even half the people who need Social Security, let alone Medicare, food stamps, let alone TANF, let alone S-CHIP, let alone the needs of all the other people who go without health care, who are homeless, and otherwise are in desperate need of help to either get themselves restarted, or get themselves in a position to survive despite their handicaps/illnesses/disabilities, etc.

How much liberals or conservatives contribute to charity is irrelevant to dealing with these problems, and irrelevant to finding enough money, because charity will never be able to raise more than a fraction of what's necessary.

That's what I said.

Charity is wonderful, but it will, for the foreseeable future, only be an adjunct to what's needed.

Additionally, accepting charity is humiliating, it's subject being removed or disappearing at any time, and it in no way allows for the preservation of human dignity. People shouldn't have to beg just because they're old, infants, crippled, or ill.

No, it has nothing to do with your political views, you remind me of a lot of similar folks I have met on the left whose sense of personal anecdote outweighs their ability to discuss things calmly and rationally. It has everything to do with the persona that you have established in your forays here. You may want to go back and start over, with enough tries, you may get it right. The internet can be very forgiving in that way, if you don't carry a lot of baggage.

LJ
What would buddha say? Would he tell you to make me give or would he tell you to give?

d'd'd'dave, your argument can be applied to any government expenditure.

"Is it fair for us to coerce others into paying for public libraries? Why shouldn't we just donate ourselves, if we feel so strongly about them?"

So, uh, no taxes ever yay?

Hilzoy: I just don't get this. Obama's plan is not primarily aimed at people who acted irresponsibly.

This is where your assumption of good faith gets in the way of your ability to grasp what's going on.

The right-wing approach to all kinds of economic issues involves a couple of articles of faith:

1- People in economic trouble are themselves to blame for their problems (particularly if those people are brown).
2- Government is bad and incompetent, particularly if it's acting to help poor people, and especially brown poor people.

In other words: "They're taking your money, and giving it to those people, and now all of us hard-working people are paying the price."

So the response to the housing plan is in the same category as previous blame-the-gummint-coddling-irresponsible-poor-people canards, like

-The whole crisis was caused by banks trying to meet the requirements of the Community Reinvestment Act.

-Quasi-government entities Fannie Mae and Freddie Mac were much more responsible than private banks, mortgage companies, investment firms, and ratings agencies for the proliferation of securitized, sliced-up mortgages resold as AAA investments.

Or, in other words, the recurring responses on view in the comment section here are not the product of one person, but an ideology. One which does not place a high premium on facts or citations thereof.

To be frank, dave, buddha is way over your head. I'd work on just understanding the golden rule, if I were you.

re: d^3dave's comments -

I think there are really two issues here. The first is a general and generic one that, as ari suggests, seems best summed up by the old joke:

Liberal: Do you support the use of tax revenues to fund the military/police/roads/etc.?
Fiscal Conservative: Well . . . sure.
Liberal: How about to fund universal pre-k, so that poor children aren't put at a distinct disadvantage almost from birth?
Fiscal Conservative: [indignant] What kind of person do you think I am?!
Liberal: Well, we've already established that. Now we are haggling about your tax bill.*

But alongside that, there's a much more specific and timely matter (as other folks have mentioned), perhaps best summed up in another joke:

- Knock knock!
-- Who's there?
- Herbert Hoover.
-- Herbert Hoover who?
Herbert Hoover says that "The fundamental business of the country, that is the production and distribution of commodities, is on a sound and prosperous basis," and we should rely on volunteerism and private charity to ease any difficulty, rather than risk -
-- [Slams door shut]

Granted, 2009 isn't 1929 (see also: Iraq is in the Middle East, not SE Asia, etc.), but times like these take the basic 'government is for providing important services beyond/better than random individuals could do in isolation or small groups' and turns the volume up to 11. Especially now,competent government intervention is vital.

{The Hoover Zombie walks again . . . .}

-------

Incidentally - Brett, that sucks. I'm really sorry.

* You may have heard a slightly different version.


"He even told me about the big screen the bought with the mortgage money he'd been saving."

My neighbors across the street did the same thing, Dave. They did it when there was no longer any hope that they could remain in the house due to ballooning interest payments, steeply dropping values and no hope of avoiding bankruptcy. They salvaged what little pride they had left and bought a few luxuries for themselves. The husband finally admitted to me, shortly before they moved, that he was ashamed that he couldn't keep up the payments, which had gone from less than $1800 a month to over $2700 a month.

They are gone now, divorced from the pressures of failure and living I know not where. The house has stood empty for six months and is selling for two-thirds the original value. It will probably remain vacant for another year or more. This has decreased the value of my house by about 10%.

The only thing that could have saved them would have been a reduction--not in the principle--but simply in the interest rate. At the time they bought, house prices in Southern Oregon were rising as people bailed in Northern CA and bought relatively much cheaper houses here. They missed the re-fi curve by about six months. My house, purchased in February of 2007, appraised for more than I paid for it. Not now., not by a long shot.

I would rather have my neighbors back and the house occupied, even if it meant they got a "handout" from the government. It would have saved me tens of thousand of dollars in home value.

If it pisses you off that your neighbor gave up and and blew a few hundred bucks on a big-screen TV, wait till you see your own appraisal. Reducing your neighbor's interest rate would have ultimately cost you a few dollars in future taxes. I'm willing to bet that his failure to keep the house will cost you a lot more.

I might add that there have been other costs as well. Whereas formerly we had neighbors who would gladly watch our house when we had to go away, walk the dogs twice a day and care for the other pets, and offer to drive us to and from the airport at whatever hour of the day or night, we now pay for a house-sitter and either pay to park the car or take a shuttle. Our daughter loved to play at their house, and they would baby-sit any time we wanted to go to the movies or just have some time off. Our other neighbors are mostly retirees and can't offer this kind of help.

Monetary considerations aside, the quality of life on our street is much the poorer for their departure.

Grover, translated: "I would rather have my neighbors back and the house occupied, even if it meant they got a "handout" from [d'd'd'dave via] the government. It would have saved me tens of thousand of dollars in home value [if d'd'dave had helped them. I didn't help them with even half of the money out of my own pocket even though that would've helped my value. I don't really believe in helping my neighbors (even in order to help myself). What I do believe in is the govt taking d'd'd'dave's money (the selfish bastard) and giving it to my neighbor."]

//Monetary considerations aside, the quality of life on our street is much the poorer for their departure.// Yes, I can see that. But, they couldn't really afford to be there in the first place. It's as simple as that. I'm sure they've found a nice home to rent for $1,800.

Rest easy, d'd'd'dave. Your money is not going to Grover's neighbor. Your taxes are used exclusively to pay for the chocolate chip cookies served on Air Force bases west of the Mississippi. Happy now?

--TP

Grover, translated:

For someone who hates being told what to do, you sure like putting words into other people's mouth.

"I didn't help them with even half of the money out of my own pocket even though that would've helped my value."

No, Dave, I didn't have a spare $30,000 to loan them to reduce their principal, or even $700 a month indefinitely to offset their payments.

"I don't really believe in helping my neighbors (even in order to help myself)."

I did what I could afford to do--I voted.

"But, they couldn't really afford to be there in the first place. It's as simple as that."

It's not as simple as that, Dave. In fact, they could afford it. They both worked and had adequate incomes. They simply made the mistake of choosing an ARM on the advice of their mortgage broker, when a slightly higher fixed rate (which they also qualified for) would have kept them in the house. Countrywide was still pushing ARMs as late as mid-2007 here, when it clearly wasn't in the best interests of their clients.

As for spending "your" money--well, it's "your" economy and "your" country too. Someone struggling to come up with an additional $700 a month for a mortgage they could otherwise afford isn't going to be spending that money at the local mall or in restaurants, or buying a new car.

I expect that this comment will simply get lost in the midst of the kerfuffle, but it seems to me that there is an important dimension to what the Obama plan is attempting to do (whether it succeeds or not is another story) which is being lost here in the debate over deserving vs. undeserving households and the political philosophy of free market vs. govt regulation, and whether dave is paying for Grover’s neighbor’s house. This can be summed up in a few words:

Walkaways, aka jingle-mail.

Now if you aren’t familiar with this term, a little stroll down memory lane over at CalculatedRisk would probably be helpful. But to make a long story short, for a great many homeowners who are now underwater on their homes by a non-trivial amount (i.e. anyone who purchased or refinanced a house since about 2004 or so without putting at least 20 percent down and probably more than that in the select markets which have seen a greater than 30 percent decline), it no longer makes rational economic sense for them to continue paying their mortgages. What they should do if they are purely rational actors is move to a cheaper rental and just walk away from the mortgage, either by mailing in the keys ("jingle mail"), or by simply letting the foreclosure process proceed.

Those who are willing to deal with the process of actual physical eviction by local law enforcement can if they wish gain the additional economic benefit of continuing to live in the house rent free until such time as the authorities get around to tossing them out on the street – which could take a year or more. Or even longer if they are savvy enough to figure out that lenders may lose in court if asked to actually produce the note for the loan (i.e. the physical documents signed at closing), which is turning out to be easier said than done courtesy of the originate to distribute loan process and the disorganized chaotic paper trail it created.

There was some concern during the first wave of subprime defaults last year that large numbers of people might actually do this – in fact a good deal of media attention was attracted by a website youwalkaway.com which somebody set up to make money off this crisis by selling pre-packaged consulting services to folks who were interested in doing this. Fortunately this did not happen (thus far) on anything like the scale that it might have. We don’t know exactly why, but IMHO a reasonable conjecture is that it was a combination of non-economic factors (the social stigma of foreclosure for example) and people hoping that the housing market crisis would be short-lived.

Now consider two things:

1 – How much weaker will the factors which up to now have restrained walkaways by underwater homeowners become if foreclosures become so widespread that the social stigma of them wears off, and people perceive that this is a long term crisis and nobody is going to help them, instead they are on their own. Now factor in that like it or not the govt. is intervening to prop up the financial sector. How does an underwater household react if the bank gets help from the govt., but they don’t? Do you think walkaways might go up? By how much? Is this going to be a linear, monotonic increase, or could it go non-linear?

2 – What will the effect be on the already stressed financial system if large numbers of people who are today continuing to make their mortgage payments simply stop doing so (the housing equivalent of a renter’s strike)? Keep in mind that leverage applies to effects on the credit market, acting as a multiplier of any further disruptions.

How much does it cost if we have a dramatic increase in walkwaways which comes to encompass the majority of underwater households, and the loss of that revenue stream is multiplied by the leverage currently typical in the financial system? Offhand I'd guess that we are talking about trillions, not billions.

So is 75 billion spent on stabilizing the mortagage market good insurance against an extreme event of this kind, or not? You decide.

Is this going to be a linear, monotonic increase...

ObPedant: Anything linear is inherently monotonic.

Otherwise, excellent post. I have to admit to being surprised that so few people are acting like rational agents in this regard. Makes me hopeful that the libertarian infection has been contained :)

ObPedant: Anything linear is inherently monotonic.

Thanks for the correction, although I was using two terms (rather than just one) to distinguish between the dynamics of the underlying system and the profile of the resulting output respectively, i.e. not all linear dynamic systems produce monotonic output. My bad for not making that clear.

Gosh, wish I'd been able to see four months into the future to make a response the quality of TLT's when I was recommending immediate help for struggling homeowners back in October! All I could really come up with was the quality-of-life benefits to the communities involved of reducing the number of abandoned houses.

Turbulence was the spokesperson then for the other side of the argument -- more credible than the no-help advocates in this and the companion thread, but pretty vehement. You out there, Turb? Does TLT's case (plus the unfolding events of the past four months) persuade you at all?

"...if foreclosures become so widespread that the social stigma of them wears off, and people perceive that this is a long term crisis and nobody is going to help them, instead they are on their own."

Like the people in the article I linked to here?

As someone who has both worked for and at times been the recipient of charities, Gary, I agree with some of what you said: it's not possible for private charities to completely replace structured government spending for meeting human needs. One major reason is that a majority of charitable giving in this country isn't spent on the needs of the poor, but on institutions that benefit the donor, such as churches and alma maters (which sometimes use some of their donations to serve the poor, but not in significant percentages).

However, I disagree with your comment about receiving charity being humiliating. In my experience, it depends on the charity and their staff. In most cases, no begging is required (compare that to trying to obtain goverment services!), and the staff are caring and compassionate, not condescending, with those they serve.

One more thing, just to mix this discussion up: there is a strong intersection in this country of government and nonprofits, in that government funds are often granted to charities to provide services. For example, most Head Start programs, while paid for by government funds, are operated by private charities. And when government spending is retracted, many of those charities (the ones that could supposedly take the place of government in serving the poor), don't have the funds to continue operating.

One clarification: By saying "In most cases, no begging is required (compare that to trying to obtain goverment services!)", I don't mean to suggest that you have to beg to obtain government services. But usually you have to complete a lot more paperwork to document need. In contrast, wtih many charities, you just have to present yourself as someone in need, and they take you at your word.

One clarification: when I wrote, "In most cases, no begging is required (compare that to trying to obtain goverment services!)," I didn't mean to suggest that you have to beg to receive goverment services. However, you usually do have to complete a great deal of paperwork in order to document need. In contrast, with many charities you only have to present yourself as someone in need, and they take you at your word.

Turbulence was the spokesperson then for the other side of the argument -- more credible than the no-help advocates in this and the companion thread, but pretty vehement. You out there, Turb? Does TLT's case (plus the unfolding events of the past four months) persuade you at all?

TLT's case here is interesting (as always), but I don't really agree with it. However, I'm not particularly bothered by the Obama plan. There is immense political pressure to do SOMETHING about the mortgage/foreclosure crisis, and to be honest, most of the somethings I expected our political establishment to do were much worse than what Obama has proposed here.


As for TLT's jinglemail comment, my sense is that we're not going to see a large fraction of homeowners who rationally should walk away actually walking away. There are a couple of reasons:

(1) People are not rational economic actors. They are particularly irrational when it comes to owning a house. It is really hard for people to walk away from the house where their kid said her first words or vomitted all over the wall. Beyond that, homeownership is so highly valued that people who go from owning to renting will take a dramatic hit in terms of self-esteem. Historically, people in the US have believed that property owners were better citizens than non-owners: owning was a signal of responsibility and honor and moral upstandingness. Just like we haven't purged our society from the effects of slavery, the social effects of those beliefs still linger, even though no one would be willing to say outloud that "owning a house means you are a better person than those filthy renters".

People incorporate their status as homeowners into their self concept, so formally abandoning their mortgage (even if they know that they're soon going to be forcibly severed from the mortgage) is psychologically difficult. I think it is a little bit like what happens to some men when they get laid off: their sense of self worth is intimately wrapped up in their ability to be the bread winner and they define themselves as workers. Losing their job thus comes as a psychological blow beyond the unhappiness and uncertainty that you would normally expect.

(2) People aren't going to walk away because the bank is telling them not to. We do what authority figures tell us (Milgram experiments anyone?). Especially when the authority figures made us sign unbelievably scary documents when we got our mortgage and our now sending us unbelievably scary notices. Most people won't think to look past the bluster; instead they'll do what they're told, until they just can't. But walking away means taking an affirmative step, and that's hard to do when you're trying to obey the authority but failing. At that point, a sense of resignation often settles in and people become helpless over their mortgage, which is not really conducive to seizing the initiative and walking away.

(3) People who are unable to pay their mortgage payments are likely to become depressed and avoidant. Servicers have reported that once people fall behind they have trouble making contact with avoidant owners. In that state, owners want escapism, not a ruthless analysis of their financial position.

(4) People who are underwater now may very well think "so what?". My retirement investments have lost lots of value, but I'm not going to cash them out. Many people are convinced that housing always appreciates dramatically in the long run, so if they just act like good long term buy-and-hold investors, they'll be fine. Sure, they can't use their homes like ATMs anymore, but they weren't supposed to be doing that anyway.

I'm sure that some people will walk away. I just don't think it will be anywhere near as many as the number of people who would be better off walking away. I don't think the number of walk aways is impacted by public perceptions of big companies getting bailouts: the reasons I listed above that keep people from walking away are largely insensitive to that.

One more thing, just to mix this discussion up: there is a strong intersection in this country of government and nonprofits, in that government funds are often granted to charities to provide services. For example, most Head Start programs, while paid for by government funds, are operated by private charities. And when government spending is retracted, many of those charities (the ones that could supposedly take the place of government in serving the poor), don't have the funds to continue operating.

I think this is a point that needs made more salient; if you're railing about government inefficiency, you're also railing at the non-profits that are actually doing the work in the field. And the way they're set up, those non-profits will become MORE inefficient if you slash government funding, because they will have to add more administrative overhead for such things as fundraising to make up for that funding/

"... even though no one would be willing to say outloud that 'owning a house means you are a better person than those filthy renters'."

I've heard some people say more or less that.

I thought that this blog post was interesting, about homeowners demanding actual proof of ownership before accepting foreclosure notices. Sand in the gears, I say... (the blog is more about credit cards and the credit industry, but it worth a look. I like this idea too)

I also predict that we are going to have stories of 'walk-away' owners and the press will make this Welfare Cadillac Mamas 2.0. You already see anecdotal stories dressed up as warning of the tsunami of people just blowing out of town which, after Turb's comment, I would look at very suspiciously.

"Some people are paying more than they can afford because they knowingly took out mortgages that were too big -- perhaps counting on being able to refinance or sell their home once their teaser rates ended. Some are paying more than they can afford through no fault of their own: they lost their jobs, had unexpected health crises, etc. Some are probably in between these two camps: people who talked themselves into accepting loans that they probably couldn't afford, or could afford only if everything went right, and then things went wrong. And some were probably defrauded."

Sounds like the behavior of the financial markets to me.


(1) People are not rational economic actors. They are particularly irrational when it comes to owning a house.

Turb,

That was a really good list of reasons for people to stay in their homes past the point of rational utility maximizing (all of it, not just (1) which I excerpted for brevity), and I don't see anything to disagree with it. I really wasn't addressing the group in (4) on your list (folks who have been in their houses long enough to build equity before the downturn).

Where I think we may have a problem is with reasons (1) and (2) that you listed. They look to me to be based on a shared social consensus about the psychological and social (i.e. moralized) value of home ownership. What happens if that consensus starts to break down as foreclosures become more frequent? The notion of what is normative is going to be under pressure as more neighbors, friends and associates are affected by the foreclosure crisis. Ditto for the legitimacy accorded to the opinions of authorities about what is the right way for people to act.

Is there a tipping point beyond which that consensus collapses? We know that this phenomenon is seen with other types of behavior influenced by social consensus (e.g. littering, or waiting in heterogeneous queues such as traffic lane merge situations). If there is a tipping point then once it is reached does the post-consensus behavior erode all the way down to the baseline of rational utility maximizing, or does it stop short of that?

IIRC nobody in behavioral economics or social psychology has studied this particular problem (mortgage debt strike, which I prefer to the term walkaway because in some instances people may refuse to leave their homes while rejecting the terms of the current mortgage market) to the point where we have any idea what is going to happen, so this is a mere hypothesis, not a statement of fact.

With that caveat in mind, here's another sobering thought: if debt strike does have a tipping point, we will start to see it happen well before the nation as a whole reaches that critical threshold, because foreclosures are not evenly distributed across the country. They are concentrated in particular communities which are being hit much harder than the nation as a whole. If the tipping point is at some high value, say around 50 percent, we may actually reach that point in particular communities, appalling as that sounds.

Here's my nightmare scenario: we have a tipping point with no stable social consensus at a lower level (but above the baseline), and we also have network effects. The tipping point is reached in a few of the hardest hit communities, and then spreads via news media coverage to other communities which are also highly stressed and near their own tipping points. This causes the tipping point in those other communities to shift downwards, and so it spreads like a chain reaction. The result could be like a dam breaking – the collapse begins at the point of maximum pressure, and then spreads by a process of lateral erosion, until the entire edifice is washed away.

And note that since the inhibiting factors you listed above are quite strong, this means that they can store up a large amount of economically sub-optimal behavior before the tipping point is reached. A taller, stronger dam can store more water behind it.

Until it breaks, that is.

I really wasn't addressing the group in (4) on your list (folks who have been in their houses long enough to build equity before the downturn).

I think (4) applies to people who haven't built up equity. Consider the case of a family that bought a house in 2007. They put down almost nothing and they're deep underwater. If they haven't tried to use their home as an ATM, how do they even know whether they're underwater? They find out eventually due to sales around the neighborhood (if they're observant) or tax assessments (if they wait long enough), but it is not a number that really matters. And if they really believe that real estate is always a good investment in the long term, who cares what some incredibly abstract hypothetical number means anyway?

Where I think we may have a problem is with reasons (1) and (2) that you listed. They look to me to be based on a shared social consensus about the psychological and social (i.e. moralized) value of home ownership. What happens if that consensus starts to break down as foreclosures become more frequent?

ThatLeftTurn, I love the scenario you bring up. I don't think it is likely to arise, but it is an awesome possibility to think about. Here's why I'm not as worried as you are:

(1) The similar examples you give all involve the lack of an authority figure. People behave differently when they think they're anonymous versus when they have to confront an authority figure. Your traffic merging example could be extended to speeding: lots of people speed and there is a rough social consensus justifying speeding, but when drivers see a cop on the highway, they all slow down. Alternatively, compare credit card fraud rates for online versus telephone versus in-person transactions: the more human interaction associated with a transaction, the lower the fraud rate. To the extent that mortgage servicers can make owners feel like "someone is watching", I think even a developing social consensus of debt striking will not significantly affect borrower behavior.

(2) You talk about social consensus changing in response to events, but I think that issues relating to how people construct their self-conception change on a much longer time scale. In a sense, I think that people internalize notions of "homeownership defines me as a good citizen" early on in life and then freeze them out. I mean, how often do you change your own notions of what it means for you to be a good person? What sort of real world change would have to occur before you changed one of those notions?

The tipping point is reached in a few of the hardest hit communities, and then spreads via news media coverage to other communities which are also highly stressed and near their own tipping points.

I don't think media coverage will effectively propagate a developing consensus on debt striking. I mean, our media is run by elites who aren't very bright. The national outlets won't have a clue when hard-hit communities go into full blown debt strike mode: I mean, as long as NYC, DC, and the Hamptons are OK, how could Chris Matthews notice? If they do somehow manage to get a clue, they will present these people in the least sympathetic light possible because national media institutions have tremendous difficulty sympathizing with normal people against the business class. That's why news programs talk about the Dow Jones average while ignoring unimportant things like the employment rate, median wage growth, etc. Now, local media might provide good coverage, but local media won't be of much help in distributing the story to people outside the affected area.

A taller, stronger dam can store more water behind it. Until it breaks, that is.

I think you're right about the dynamics of how this sort of problem develops. Where I disagree is that I think cultural, psychological, and media ineptitude factors give us a large enough safety margin. But who knows. We'll find out soon enough I think.

As usual, a thought-provoking exchange. Thanks for that.


Consider the case of a family that bought a house in 2007. They put down almost nothing and they're deep underwater. If they haven't tried to use their home as an ATM, how do they even know whether they're underwater? They find out eventually due to sales around the neighborhood (if they're observant)

Or if somebody who got a huge bargain on an REO (foreclosed property) sale decides to brag about it. Or their realtor. How many houses sell on the block before neighbor's tongues start to wag?


or tax assessments (if they wait long enough), but it is not a number that really matters.

Unless one spouse lost their job and they can't afford the mortage any more. Or they have an ARM that just recast or reset (remember, this is The Year that Alt-A crests). Then it might matter a bit.

And if they really believe that real estate is always a good investment in the long term,

I'm not so sure that the National Association of Realtors is controlling that narrative the way they used to.

who cares what some incredibly abstract hypothetical number means anyway?

The neighbors across the street are living in a house with 10 percent more square footage than you. They pay rent which is less than half of your monthly mortgage payment. Oh, by the way - your bank just got another 100 billion dollars from the govt., and they are calling you at night and on weekends to hassle you because your last payment was 1 day late. And they just raised your credit card rate to 29 percent.

How abstract is that?


1) The similar examples you give all involve the lack of an authority figure. People behave differently when they think they're anonymous versus when they have to confront an authority figure. Your traffic merging example could be extended to speeding: lots of people speed and there is a rough social consensus justifying speeding, but when drivers see a cop on the highway, they all slow down. Alternatively, compare credit card fraud rates for online versus telephone versus in-person transactions: the more human interaction associated with a transaction, the lower the fraud rate. To the extent that mortgage servicers can make owners feel like "someone is watching", I think even a developing social consensus of debt striking will not significantly affect borrower behavior.

Problem is, mortgage servicers are becoming less human and less in contact with borrowers as their service infrastructure is overwhelmed with the case load of people who need workouts, or otherwise need to talk to them. Check out any housing blog these days and read the stories of frustrated people who are begging and pleading for somebody in their servicer's bureaucracy to return their phone calls, and being told "we can't even begin to pay attention to you until you are already in default".

Now add in the stories about lenders not being able to produce the note in court and having foreclosure denied as a result.

Not good.


(2) You talk about social consensus changing in response to events, but I think that issues relating to how people construct their self-conception change on a much longer time scale. In a sense, I think that people internalize notions of "homeownership defines me as a good citizen" early on in life and then freeze them out. I mean, how often do you change your own notions of what it means for you to be a good person? What sort of real world change would have to occur before you changed one of those notions?

This is a very strong argument. My answer is that people also judge "good citizen" in terms of their friends who they know and respect. How many of those role models can be foreclosed on before homeownership loses its cache? I'm guessing that it is somewhere on the high side of 1/3rd, by very rough analogy with the psychological dynamics of surrender in small-unit military groups.


I don't think media coverage will effectively propagate a developing consensus on debt striking. I mean, our media is run by elites who aren't very bright. The national outlets won't have a clue when hard-hit communities go into full blown debt strike mode: I mean, as long as NYC, DC, and the Hamptons are OK, how could Chris Matthews notice? If they do somehow manage to get a clue, they will present these people in the least sympathetic light possible because national media institutions have tremendous difficulty sympathizing with normal people against the business class.

This is a strong point, but also keep in mind that we are talking about a prestige competition (within the media) between "the little guy" and big banks. Some of the big banks aren't even based in the US - for example thus far many of the foreclosures in Cleveland have been on properties whose title was dealt (via the magic of MBS) to Deutsche Bank.

Now factor in that the talking heads on the MSM also suffer from cultural blue-collar envy - they long to be considered "just one of the guys" (I call this Tim Russert syndrome). Which way is the narrative going to go? In favor of Big Bank, or Joe 6-Pack. Looks like a coin flip to me - another tipping point waiting to happen.

My answer is that people also judge "good citizen" in terms of their friends who they know and respect. How many of those role models can be foreclosed on before homeownership loses its cache? I'm guessing that it is somewhere on the high side of 1/3rd, by very rough analogy with the psychological dynamics of surrender in small-unit military groups.

I'd argue that it could well be lower, depending on whether the individual sees this as capitulation (in which case I think your numbers are plausible) or an "alternative lifestyle", i.e. a choice which they have now discovered to be compatible with being a good person. For the latter case, I'd guess that the percentage needed would be around 10%, based on a) what I remember of the rate of social acceptance of divorce post-legalization and b) what little I've seen on the acceptance of gay rights proportionate to the number of gay people known.

[Regrettably, I lost both sets of links during my laptop's little rootkit incident. If anyone has any, I'd be grateful.]

Also: if people start regarding this as a good way to screw unto others as others have screwed unto them, all bets are off. But then we'd probably have larger problems to deal with.

Also...

And they just raised your credit card rate to 29 percent.

Random question to the assemblage: Capital One just decided to jack my girlfriend's rate 4% this month. She wasn't delinquent on that or any other account; they just said that "economic times are hard" and that was that. I seem to remember the most recent bankruptcy bill having legalized something similar, but I'm kind of appalled that someone with a credit rating of almost 800 would be treated so... cavalierly.

That's Capital One for you. I think they're some of the more predatory of the large credit card companies, their commercials notwithstanding.

they just said that "economic times are hard" and that was that.

These anecdotes are legion within the last month or two. It appears that it isn't just the most blatantly predatory credit card companies doing it either. I read one blog comment complaining that Amex did it to a customer who had a spotless credit record with them going back more than a decade.

I think this is being driven by a combination of the need for cash flow NOW and fear of pending legislation that will prevent the credit card companies from engaging in what is called "universal default". If the latter passes then this is their last good chance to jack your rate up for reasons which have nothing at all to do with your credit history with them.

Also, because no econ-finance discussion is truly complete without a link to really scary graphs over at CalcRisk, here's the 4th Quarter delinquency rates for RRE, CRE and credit cards.

Note that historically speaking commercial real estate has higher rates of default during a recession than residential real estate (businesses are more economically rational than homeowners), so the CRE default rate has a long ways still to climb. That 12 percent rate in 1991 is probably where we are heading - very bad news for small and mid-sized regional banks who haven't felt the RRE pinch just yet because most of their loans are in CRE.

I'm not qualified to stand on the same playing field as TLT or Turb on this subject, but I will offer one bit of anecdote with regard to the countervailing pressures against walking away:

My family lives in a house. We don't own it, we rent it, but it's the first house we've ever had as a family. It's in a good neighborhood close to a great school where the kid has a lot of friends. It's not perfect, and we'd never be able to afford to buy it, but we love it here.

Between the economy being what it is and the landlord raising our rent, we can't really afford to stay here. We're stuck until October, because that's when our lease is up, and if I lose my job between now and then we are in some very serious trouble.

With all of that being said, the decision to move when our lease is up is an agonizing one. We don't want to leave, we don't want to uproot our son from his school and all his friends, and by all that is holy we so very desperately do not want to go back to apartment living. I feel vaguely like a failure for being in a position where I have to take my family backwards instead of forwards, or even for just treading water.

And we just rent the place. We've been here a year and a half. Imagine how someone with a mortgage and property in their name feels. Someone who's maybe put blood and sweat and money into improving their home. Magnify my anguish a hundredfold and you might approach understanding. I can scarcely grasp it myself, and I don't want to.

It's not easy to walk away, even if you know that financially it's the right decision. Even if you're on the precipice of financial disaster.

People are not rational economic actors: the understatement of the thread.

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