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July 30, 2013

Comments

Thank you, Tyro, for all of your comments here.

McT, this game of who I agree with, given that the version in your head bears only a tenuous relationship to the version on the screen, is really stupid. I would say 'obtuse', but that implies you are arguing in bad faith. I honestly posted this thinking that there might be some discussion about how private label securities work or what steps Richmond should take. Once you understand that your restatements are merely muddying the water, maybe we can have that discussion.

how private label securities work

One issue that I think makes this situation trickier than it might otherwise be is that, depending on how the instrument is structured, it may be less than clear who can negotiate on behalf of the noteholders, and how they might do so.

All of the mortgages might be wrapped up in one big package, or spread across lots of packages including other mortgages that have nothing whatsoever to do with the city of Richmond. They may be nominally held and managed by some legal entity - a 'special vehicle' - for the benefit of many - scores, dozens, hundreds - of note holders.

Who don't know each other, are geographically dispersed, and possibly don't even know they own the notes.

Who decides whether to settle, or whether to hold and take their chances?

The homeowners were unsophisticated and vulnerable. Why are you so intent on making them pay for that?

Because it's just wrong for Capital to suffer alone. Come on, that's just common sense. It's supposed to roll downhill; building levees after the fact is entirely beyond the pale. Even if the lenders will be no better off in the situation where the borrowers get screwed too, it's an objective moral good that those wretches be punished for immorally choosing to be unable to afford their mortgage payments (especially if they selfishly still have both kidneys).

(especially if they selfishly still have both kidneys).

So true. Thank you, Nombrilisme Vide

Just for curiosity:

I assume that the owner of a house is liable for the property tax on that house. If a "bank" owns the house because it foreclosed on the mortgage, the bank owes the property tax. Let's assume that property taxes are assessed as a percentage of "fair market value".

So: can "the bank" simultaneously call the house a $400K asset on its books, and claim that its FMV is only $200K for property tax purposes?

--TP

russell: One issue that I think makes this situation trickier than it might otherwise be is that, depending on how the instrument is structured, it may be less than clear who can negotiate on behalf of the noteholders, and how they might do so.

I wonder about this. It seems to me that if you set up a mass investment securitization vehicle that requires the permission of all, or a majority of, the owners to agree on a particular action that the promoter of the arrangement has committed some sort of malpractice or negligence.

That is, if the vehicle is a trust, the trustee should be able to decide. If it's an LLC or corporation, then management should be able to decide. But selling, say, a $100M tranche of a $1B mortgage (or whatever) securitization to several thousand investors while leaving the decision whether to compromise on an $100K loan up to a majority (or more) seems rather stupid. And since these are supposedly the smart-people, it also seems hard to believe that the didn't think about this.

Perhaps in the case of real estate there are laws that prevent this sort of centralized decision making when it comes to mortgages, which wouldn't be surprising.

I wonder about this.

Yes, I do as well.

I'm sure you are correct, that there is some entity - a trust, or an LLC - that acts as agent for the investment vehicle.

What I wonder about is what degree of autonomy or flexibility they have in negotiating things like this.

Can they make a decision like "Everybody's getting 30 cents on the dollar and we're calling it a day"?

Can they make a decision like "Everybody's getting 30 cents on the dollar and we're calling it a day"?

Good point, if they're effectively winding up the enterprise, they might need a vote of the owners, either under state law or the organizing documents. Then, pile one entity on top of another, and there's a problem.

To contradict what I said above, maybe unwinding the structures was never thought about by those doing the securitization because (i) there was "too much money to be made" and (ii) they didn't think unwinding anything would ever be necessary (perhaps related to (i)). That still seems negligent.

1. Progressive me: Kelo sucked. (Don't hang that sh*t on my corner of Progressivistan.)

2. The idea that Richmond, CA's having done something to avoid severe financial hardship, which arguably put the interests of its citizens (heavens!) ahead of those of whoever was holding their mortgages, is an affront to, well, something or other (private contracts?) leaves me... scratching my head, maybe, I guess. (Like I wrote, maybe it's just a bad idea as a practical matter. Maybe banks will shun borrowers in Richmond because of it. I couldn't really say. I'm just not seeing the slippery slope to totalitarianism. The use of eminent domain in the Kelo case was far more egregious AFAICT.)

The use of eminent domain in the Kelo case was far more egregious AFAICT.

FWIW, I agree, but think that its precedent allows what's happening here, and for that I am grateful (assuming it's so).

McKinney, I'd ask my Lakota friends to comment on your claim of respect for the ownership of real property and contract as bedrock American principles, but I am afraid they would die laughing.

Put it this way: the banks and holding companies with these mortgages are pretty much all LLCs. In other words, they are all collectives who have taken advantage of a legal structure that allows the participants to walk away from inconvenient debts. We allow this precisely because we feel it benefits the public; that people will take economic risks they would not take if, say, the Roman rules that would have allowed the creditors of Goldman Sachs to sell the chairman off at public auction still held. But I see no reason to stand on principle about the rights of one group of people using an instrument to ditch their debts while discussing a proposal to allow a different group of people to write down debts in the public interest.

FWIW, I agree, but think that its precedent allows what's happening here, and for that I am grateful (assuming it's so).

I'm not sure if I'm grateful or not, but I otherwise agree with you as well.

I'm going to pose my question(s) yet again.

Assume that there is no issue that the City of Richmond is exercising its power to take private property for public use properly in this case with respect to the mortgage loan assets of the banks/investors, and that the ONLY question is what constitutes "just compensation."

How much must the City of Richmond pay the banks/investors for those loans? If it's not the current fair market value of the loans, why not? If you can't separate the "just compensation" issue from the "public use" issue, why not?

I agree, but think that its precedent allows what's happening here, and for that I am grateful

Being appreciative for horrible precedents because they may permit some occasional good things to happen is...unwise, in my view.

They may serve some noble immediate purpose, but once you open up the door for abuse of eminent domain or the commerce clause, you also open up the door for those things to be used in ways that you won't like.

IMO, naturally. But IANAL.

Being appreciative for horrible precedents because they may permit some occasional good things to happen is...unwise, in my view.

First, it's not a "horrible precedent". It was a worrisome decision. Turns out it was a good precedent.

Second, it's "unwise" to be glad for a good result? I guess I'm unwise a lot of the time.

Turns out it was a good precedent.

By what metric? Kelo permitted the confiscation of private property for the use and profit of private developers. And the land so confiscated? Wound up being used as a dump.

I'm seriously wondering why you think that was a good decision, and by what standard.

I'm seriously wondering why you think that was a good decision

Did I say it was a good "decision"? Please cite.

Your article is from 2009. You're free to join the rest of us in the more recent decade. Please feel free to update us on what's happened to that land since then. Not that I know, or am defending or attacking what happened after Kelo. I have done nothing but state my qualms about the Kelo decision.

That said, maybe the justices knew what they were doing, because in Richmond, CA, what might happen is very promising.

And my "unwise" decision to be "appreciative" doesn't change the law.

Did I say it was a good "decision"? Please cite.

IANAL, but poor decisions making for good precedents does not, for me, really compute.

Your article is from 2009.

Indeed. So? But here's something more recent.

Please feel free to update us on what's happened to that land since then.

Why does it matter? The land will not be used for the purpose given for its confiscation. If you find that unremarkable, that's fine.

That said, maybe the justices knew what they were doing, because in Richmond, CA, what might happen is very promising.

I am disappointed. I had anticipated a more lawyerly response.

I am disappointed.

Join the ranks!

Being a liberal and all, it is really something else to be subjected to a morality lecture about means and ends from someone who presumably belongs to a movement that posits greed as a civic virtue. Quite entertaining, actually.

But let us be clear, all political factions advocate "taking something from person X and giving it to person Y". This is known as "splitting up the pie" among us commoners. Many laws and regulations do have this effect.

Why, see the concept of "private property" itself for starters. Show me a system where this idea did not start with a state sanctioned "taking" to begin with.

Being appreciative for horrible precedents because they may permit some occasional good things to happen is...unwise, in my view.

I didn't like the Kelo decision or the use of eminent domain it concerned, for the same reasons as you, Slart. But the precedent it set hasn't been determined to be horrible that I know of. What's happened since? I don't mean with the land acquired by the city of New London. I mean generally in the US.

I think that may be what Sapient is getting at. The decision on the specific case may not have been something you would agree with, and may potentially lay the groundwork for future similarly bad uses of eminent domain, worse ones even. But the sort of precedent it actually served as would be determined by the cases in which it actually was cited as a precedent.

I don't know that we can say at this point that there have been a bunch of bad decisions based on the precedent set by Kelo, and only a few good ones. (Maybe there have. I haven't paid much attention.) Maybe there's only Richmond, which might be good, meaning so far so good, if so.

Being a liberal and all, it is really something else to be subjected to a morality lecture about means and ends from someone who presumably belongs to a movement that posits greed as a civic virtue.

Whatever makes you feel good, dude.

Show me a system where this idea did not start with a state sanctioned "taking" to begin with.

I think if you're going to champion a little state-sponsored larceny, you might reasonably expect said larceny to result in some net plus to the community. Grabbing someone's home so that Pfizer can have the land, though, isn't really something I expected to see a self-professed liberal to applaud.

Why, see the concept of "private property" itself for starters. Show me a system where this idea did not start with a state sanctioned "taking" to begin with.

Thank you! Nice for me to be on the side of the angels for a change.

Kelo was a funny decision, opinions about its goodness don't neatly fall along liberal / conservative lines.

IMO Kelo was a crap decision, if for no other reason than that the 'public good' was never actually achieved. I believe the land in question continues to be a dump, literally, to this day.

What Kelo was not, as far as I can tell, was a precedent. Taking private property and delivering it to other private actors 'for the public good' was established in Berman, Poletown, and Hawaii Housing vs Midkiff.

Poletown was later overturned, the others I think stand.

So, if we date from Berman, the precedent for taking private property for a broadly construed 'public good', as opposed to 'public use', goes back not quite 60 years.

For reference.

Where the Richmond situation differs from Kelo and similar precedents is that what is being taken is not property, but the mortgage. And if I'm understanding the deal correctly, the city will hold the mortgage after the deal is done, so apparently there is no transfer to a private third party. I might be wrong about that, it's not completely clear from the article.

The homeowner does benefit, quite a bit, because their debt load is reduced by a substantial amount.

But the city's goal here appears to be their own interest in not having the property values degrade.

I don't know if the precedent of 'public good' vs 'public use' is a worthy one, but it's been in place for 60 years, maybe longer.

I don't know if Richmond's goals amount to a sufficient 'public good' to justify a taking.

I'm sure it will end up in court, and that's where the decision regarding both of those questions will likely be made.

Grabbing someone's home so that Pfizer can have the land, though, isn't really something I expected to see a self-professed liberal to applaud.<0i>

Nor would I, nor have I. So WTF is your point?

Many "liberals" are quite critical of the Court's (a conservative court I might add) endorsement of a rather suspect alignment of ill considered public need (yes, the public does make mistakes from time to time)and self-evident private gain.

italics?

This is the very narrow "holding" of the Kelo case, which serves as precedent:

"A city’s decision to take property for the purpose of economic development satisfies the “public use” requirement of the Fifth Amendment."

It is different from Berman, in which blighted property was intended to be taken by the government (property in the District of Columbia, taken by the Federal government) for resale or lease as public housing (the public good was the elimination of housing blight). Midkiff was a case where Hawaiian landowners were forced by the Hawaiian legislature to sell land to tenants in order to redistribute land ownership more widely (the public good was elimination of concentrated land ownership).

So both cases resulted in private land taken for eventual resale to private owners. The difference with Kelo was that it was merely for improved land use. As Justice O'Connor's dissent suggested, it basically would have allowed the city to take a Motel 6 in order to replace it with a Ritz Carlton.

The reason the Kelo holding is helpful to the Richmond CA folks is that the effect of the Richmond plan is to "take property for the purpose of economic development." The process of "fixing" the homeowners' underwater mortgages will revitalize the economic health of the properties. It's different from Kelo (and the beauty of the common law is that "precedent" bolsters new "precedent") but Kelo's "holding" bolsters the actions of the Richmond mayor. I hope his plan works.

I still want an answer to my question: can a bank, which owns a house it has foreclosed on, claim that the house is a $400K asset on its balance sheet but simultaneously insist to the municipal assessor that the house has a FMV of only $200K?

The point of my question is this: if the city can collect property taxes based on what the bank says is the value of the empty house ($400K), then perhaps the city does not need to resort to eminent domain.

If our pro-corporation conservative friends want to argue that the bank is entitled to have it both ways, I say fnck'em in advance.

--TP

thanks for the analysis sapient! much appreciated.

russell, I enjoyed reading the Midkiff case, which for some reason I hadn't done previously, so thanks for that. It was a unanimous decision (8-0, with Thurgood Marshall not participating) upholding the right of Congress basically to redistribute land titles in Hawaii, eliminating the feudal system there (although the wealthy landowners were compensated, of course). I have to wonder whether the case would have been unanimous from the current Court, or would even have been decided similarly. I'll have to look into where else the case has been cited when I have more time.

This has some more info on who is involved

This is some interesting background on Midkiff

From the article Marty cites:

The battle is a legacy of the housing bubble that began to burst seven years ago.

They got that right.

However all of this lands, some number of folks are going to end up screwed.

It won't be whoever sold a school bus mechanic an interest-only loan on a $420K house.

It won't be whoever bundled that loan into Lehman XS Trust.

It won't be the folks who rated Lehman XS Trust as fairly good to very very good paper.

It won't be whoever sold Lehman XS Trust to PIMCO.

Lehman XS Trust shows up in several court dockets.

It's a freaking mess.

You are quite correct, it's a lot of ordinary people who will be getting a haircut if the eminent domain deal goes through. You or I might well be among them, because stuff like Lehman XS Trust gets bought by institutional investors like PIMCO, who are doing so on behalf of other institutions, etc etc etc, until it all lands in Some Regular Guy's lap.

And I agree that that sucks.

All of that said, it also appears that the city of Richmond has an interest in not letting its property value base go to hell in a handbasket.

So this will probably end up being resolved the way that 1,000,000 other rocks and hard places get resolved, which is in court.

Way upthread, you asserted that the real issue here was how the city of Richmond found itself in such a bad way.

I think that's wrong.

IMO the real issue here is how we, as a nation and a community, allowed a bunch of greedy scumbags to bend us all over, for years, without lifting a finger to stop them.

McK is correct, there were folks who identified the real estate bubble years before it collapsed. And, they pointed out quite clearly what was going on.

They were ignored by the folks responsible for regulating the financial sector. I suspect money was a factor.

And so the whole thing blew up in our faces. The whole Richmond mess is just fallout.

A really fair outcome, IMO, would be for the borrowers and the lenders to make a deal, and to the degree that either or both parties ended up with a loss, make them whole by seizing the assets of the various actors involved in every phase of the construction and sale of Lehman XS Trust, and redistributing those funds to whoever got hosed.

Which would probably be whoever held the paper at this point, because the houses are just not worth what the paper says they are worth, and the borrowers apparently don't have the $$$ to pay the notes. I.e., the money is not there.

But my clever plan will never, ever, ever, ever, ever, ever, ever happen. Neither it, nor anything remotely resembling it, will every be considered or even suggested anywhere, anytime, other than in this blog comment, by some random lefty knucklehead typing away in his pajamas.

Never.

So this will all get sorted out in court.

Brett shot a random lefty knucklehead typing away in his pajamas the other day. What he and the typewriter were doing in Brett's pajamas we'll never know.

There is one rule that I hope is followed to the letter in this mortgage mess, and that would be the proper reading of Miranda rights to a passel of Lehman Brothers bankers.

"...and the borrowers apparently don't have the $$$ to pay the notes. I.e., the money is not there."

I don't know about all of the borrowers, maybe most are different, but the couple they discuss here have already had their mortgage payment cut in half, that's 50%.

So how much more than they could afford did they sign up for originally? And the problem is some banker convinced them they could afford $6000 a month, now they can't afford $3000 a month?

Or can they really afford $3000 but just don't want to?

Whatever the resolution here, eminent domain, whatever, these people are looking for the city to fix their bad choice. And my real objection to all that is that, even at this point, you are going to blame the bank.

And I will point out that this scam is really cooked up by a new fund that will get the mortgages for the discounted price and make a bunch of money on them.

The actual value to Richmond is currently unknown.

the couple they discuss here have already had their mortgage payment cut in half, that's 50%.

Yes, I'm aware of that.

Or can they really afford $3000 but just don't want to?

I could be wrong, but I suspect a school bus mechanic with an autistic kid is going to find $3K a month to be a tough nut to make.

What I also can easily imagine is that the note was not originally $6K a month, and that these folks found themselves up the well known creek without a paddle when the terms changed.

There were lots of squirrely terms being shopped around at that time. I know, because my wife and I were offered a variety of them. We had the financial sophistication to say "are you sh*tting me?", followed by "no thank you", followed by "sorry, look at the time! gotta run!".

Not everyone has that level of sophistication. Some unsophisticated people nonetheless wanted to buy homes, so they relied on banks and mortgage brokers to deal honestly with them.

And, some of those folks found themselves surprised when they discovered what the fine print said.

Think I'm making that up?

these people are looking for the city to fix their bad choice.

Unclear who is initiating this. I.e., whether these folks are seeking relief from the city, or whether the city is approaching them.

And my real objection to all that is that, even at this point, you are going to blame the bank.

You are by god right I blame the bank. The reason situations like this exist is because the FIRE sector at that time was infested with chiseling criminal SOBs.

The industry was full of lying, thieving, criminal MF'ers in nice suits, and they screwed a lot of people - millions of people - over to in order to enrich themselves.

The big banks should have been broken up, and many of the principals in the RE estate bubble should have had their assets seized and then been sent straight to jail.

Liars, cheats, and thieves. That's who we are talking about. In a sane world they'd be doing time.

If you need it spelled out any more plainly, I will be happy to oblige.

What I will also point out is that my blaming the banks for the RE bubble is supported by ample, ample, ample evidence.

Your blaming the couple with autistic kid is based on conjecture. Neither you nor I know what terms were explained to them when they signed on, what monthly nut they thought there were signing up for, or what they understood about the loan.

I don't know, you don't know. You're just assuming.

this scam is really cooked up by a new fund that will get the mortgages for the discounted price and make a bunch of money on them.

Unclear from the article who holds the mortgage after the deal is done.

You could be right, it might be yet another colossal scam cooked up by some greedy bankers.

Richmond should watch their @ss.

"Think I'm making that up?"

No I think they are

"Unclear from the article who holds the mortgage after the deal is done."

I think this clears that up:

The program is advocated by Steven Gluckstern’s Mortgage Resolution Partners LLC, which would provide services and arrange for private investment funds that would profit by buying the loans for less than property values, and reworking them.

No I think they are

Clearly.

And your opinion is based on nothing more than your assumptions.

I think this clears that up

Then IMO that argues against this being an appropriate use for eminent domain.

From my understand of the history of how eminent domain has been used, I suspect the city has a reasonably good case to make.

In my opinion and my opinion only, it would be better for the city and whoever is in a position to speak for Lehman XS Trust to work out a deal.

It sounds like the city has tried that and been rebuffed. So, their options are limited.

But personally I would look less favorably at a scenario where the notes were simply transferred from one private party to another.

Just my opinion.

More about Gluckstern.

And this.

". But the properties have dropped in value so much that were most banks to correctly value them on their balance sheets, they would be required to go out of business!"

I haven't really addressed this much, but for those financial institutions where mortgages are a significant issue, these losses have probably been over reserved in the balance sheets. The "improvement" in earnings for the largest banks over the last few quarters is that they have been able to release some of those reserves, which then become revenue in that quarter. Some community banks holding mortgages(not very many) might be at risk. Regional banks have, by and large, stuck to agency mortgages so they don't carry the risk.

More details on the Castillo mortgage and Mortgage Resolution Partners: Richmond Eminent Domain

russell: But personally I would look less favorably at a scenario where the notes were simply transferred from one private party to another.

My guess is that that is the plan because the city doesn't have the money to purchase and hold all the loans. So it will leverage the private financial backing and pay transaction costs, plus I'm sure some sort of spread - but at the end of the day it won't be holding the loans (maybe a few).

Slightly of topic but a Minnesota congressman has some ideas on dealing with our housing and tax problems that intrigues me.
The Common Sense Housing Investment Act (H.R. 1213)
ellison.house.gov/index.php?option=com_content&task=view&id=977&Itemid=186

Marty: I haven't really addressed this much, but for those financial institutions where mortgages are a significant issue, these losses have probably been over reserved in the balance sheets.

Hmm. Now you've got me wondering how the accounting works for Tier 1 capital under Basel for regulated banks, and actually US GAAP/IFRS generally. Because from what I can tell part/most of the reason regulated banks and certain other investors are upset over the Richmond plan is that they'd be required to recognize the unrealized loss inherent in the assets.

But if they're over-reserved, that shouldn't be an issue. Indeed, being forced to sell would actually result in an earnings bump, as you note, because they could release the reserves. Bonuses all around!

So, I suspect that there is some game being played here that takes advantage of the way the accounting rules and/or Tier 1 capital rules work. For example, Tier 1 capital includes retained earnings, so the question is, how are retained earnings calculated and, in particular, whether there is a "mark-to-market" system in doing the calculations that would require banks to reduce retained earnings when the value of an asset declines, even if the bank still holds the asset. If not, then they would only have to reduce retained earnings when the asset was sold, which would reduce Tier 1 capital.

There is a form of this in the Tier 1 rules in the "risk weighted assets" calculation, but it's unclear to me whether this weighting is constantly updated, or if it is assigned when the asset is acquired and then never re-assessed - or only in extraordinary circumstances not present here.

I'm also wondering if any of these rules permit a bank that has foreclosed on a home to value the home at the face value of the mortgage note that gave it the ability to foreclose. Thus, while it could foreclose on a delinquent loan, it wouldn't have to recognize the loss until the home was sold and, thus, it's better to let the homes sit vacant from a pure accounting (and management compensation) point of view.

Indeed, I recall reading stories that the problem here is not that there aren't any willing buyers for these mortgage loans, but that there aren't any willing (and/or able) sellers.

Ugh,

I suspect that the big problem with this plan is that it takes good and bad mortgages, pretty indiscriminately. There are lots of people who will pay their mortgage that will be included in the ones picked by MRP.

This will create an issue because they would never reserve for ALL the mortgages that are underwater. The proposed solution would turn EVERY underwater mortgage into a bad mortgage, overnight

They probably, thinking about it now, don't have that over reserved. Hmmm.

I suspect that the big problem with this plan is that it takes good and bad mortgages, pretty indiscriminately.

Per the original article, the 626 mortgages that were chosen were selected because they were considered to be at a high risk of default.

Where 'high risk of default', again per the article, appears to be behind on payments, or extremely underwater.

This is tangential to the specific situation, but I was wondering about a scenario like this:

Suppose Richmond was pursuing eminent domain on one of these underwater houses for a traditional "public use" reason (say it's a corner lot and they want to widen the road to add a turn lane). Would they have to get mortgage-holder approval for the short sale, as would be the case in a private transaction? If not, how would it all shake out?

Presuming the mortgage-holder has to accept the deal, then the only difference between the hypothetical and the actual proposal is in one case you've got people living in a house and paying taxes, and in the other you've got a big patch of asphalt and some people looking for an apartment, all "sanctity of contracts" be damned.

Whatever the differences legally, from an ethical point of view it's hard for me to accept that pavement is OK but the other is not. Except for Brett I haven't seen any of the other libertarian/conservative folks here argue for doing away with eminent domain entirely as a government power, but to me that seems like where the logic of their objections leads.

Whatever the differences legally, from an ethical point of view it's hard for me to accept that pavement is OK but the other is not.

The McKinney would argue that the difference is that in one situation the state intervenes to benefit one private party (underwater homeowner) at the expense of another private party (note holder). This is condemned as a violation of contract. On the other hand, a bankruptcy judge who stiffs pensioners at the expense of bond holders is preserving The American Way of Life, contracts be damned.

Ethics is not easy.

oops....should be "to the benefit of bond holders" not "at the expense of....."

Proofread, Bobby.

I though the opposite was done in the case of GM.

Ilya Somin argues that the city's loan valuation is incorrect: http://www.volokh.com/2013/07/31/just-compensation-problems-with-the-city-of-richmonds-plan-to-use-eminent-domain-to-condemn-mortgages/

Take the hypothetical $400,000 loan on a house currently worth $200,000. The interest rate on the loan is probably higher than the current risk-free rate, meaning that if we were sure that the payments would be made, the loan would be worth a bit more than $400,000. On the other hand, if the borrower is going to default tomorrow, the loan would be worth $200,000 (the value of the house) minus the cost of forclosure. The market value of the loan is going to be somewhere in between these numbers, depending on the probability that of default.

The city needs to buy the loan at 80% of the value of the house, which comes to $160,000. To exercise eminent domain, the city has to convince a court that the market value of the loan is no higher than that. That seems like a tough case to make. The city has to show that a foreclosure costs at least $40,000. (Otherwise the loan would be worth more than $160,000 even if the borrower defaults.) The city also has to show that the probability of default is at least 60%. (Otherwise, the loan would be worth more than $160,000 even if the lender recovers nothing in the case of default.)

So I don't know how realistic Richmond's idea of using eminent domain is. Perhaps Liberal Japonicus will provide us with a followup post in a year or so to let us know what happened.

Feel free to prod me in a year's time. The reason I'm interested in this is that here in Japan, I've not heard much discussion of this, and here, the value of the house essentially drops to zero pretty soon afterwards (People generally buy the land, tear down the house and build a new one)

Also, for those interested, here is a state by state map of the foreclosure problems in the US.

I though the opposite was done in the case of GM.

And what was your opinion of that?

Any company thought to be too big to fail should be allowed to fail so it won't be so big.

First in line creditors were wrongly given a haircut to benefit creditors further down the line.

Tax payers are likely to loose billions on the deal.

Any company thought to be too big to fail should be allowed to fail so it won't be so big.

I think there are two problems with this argument. First, it completely fails to engage with the argument that letting certain companies fail would lead to economic devastation far beyond the failing company. Now, maybe those arguments are right and maybe they're wrong, but you can't just pretend that they don't exist. You have to engage with reality, not just assert it away like an idiot.

Secondly, you're assuming a can opener. Of course big companies should be allowed to fail. But big companies have large amounts of political power and so they won't be dealt with in a fair manner. Just saying, "but they should be allowed to fail", over and over, while stamping your feet and holding your breath doesn't really help. How do we neutralize the political power of big companies and wealthy individuals so that we can make fair decisions about them?

Re Turbulence, Google Ford Motor Company's Chairman's comments at the time of the GM and Chrysler bailouts regarding the likely cascade of bankruptcies among first-line auto parts manufacturers here and abroad AND Ford itself, despite Ford refusing a bailout.

Multiply that throughout the economy, and remember that when the tree of liberty is starved of money, it finds more destructive methods of watering.

I agreed with letting Lehman Brothers go under, but without TARP to support the unwinding of the vast interlocking web of financial shenanigans put in place by these highly intelligent, maneuvering swine who deregulated
and destabilized the financial superstructure of the world's financial system, there would have been one squirrel left for the rest of us to feast on in them thar hills.

One thing a Day of Jubilee, so vaunted by the private sector and libertarians, despite its attractions, is not is jubilant.

If folks don't like "too big"', then prevent it up front, but that would mean government rules and action, and since we can't have nice things to preserve the delicate principals of the purists, then maybe we need a cathartic crash and principled [email protected] misery to sort out who is left standing.


This thread is probably finished, but this provides another reason why some people don't want the situation to be investigated too much.

The registrar of deeds in my county (Essex County MA) has been doing yeoman's work in the area of sorting out fraudulent mortgages. Among other things, he refuses to register mortgages if he finds them deficient, he encourages property owners in the area to review their own paperwork to uncover evidence of fraud, and he has initiated lawsuits against the banks to recover title registration fee revenue lost when banks register mortgages with the MERS database instead of the town and country registrars.

He commissioned an audit of all mortgages filed with the county in 2010, and found the following:

  • 16% of the assignments were valid, 75% were invalid, and 9% were deemed questionable.
  • Of those that are invalid, 27% were fraudulent, 35% showed evidence of robo-signing, and 10% violated the Massachusetts Mortgage Fraud Statute.
  • The proper owner of the mortgages could only be determined 60% of the time.

For 2 out of 5 mortgages registered in my county in 2010, proper ownership is unclear.

16% - one in six - were properly executed.

Liars, cheats, and fraudsters. Greedy, venal, mendacious bastards.

Someone should be going to jail.

Liars, cheats, and fraudsters. Greedy, venal, mendacious bastards.

Your registrar of deeds is doing the right thing, and any lawyer who was working on these cases should be investigated by their state bar. It was a gross dereliction of duty by the legal community.

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