Apologies for the thin links. I have to be on a plane at what is an ungodly early hour for me. So I hope readers will provide additional links in comments for the benefit of all.
When in Doubt, Shout Paul Kedrosky
One nation, under fraud Joseph Tauke, The Daily Caller. A lively, non-technical piece on the foreclosure crisis. A good review for those who want to catch up on this story.
Japan, Once Dynamic, Is Disheartened by Decline New York Times
How Countrywide Covered the Cracks Gretchen Morgenson, New York Times
The historical echoes of the mortgage bond scandal Felix Salmon
Wow Streetwise Professor
“Income Inequality: Too Big to Ignore” Mark Thoma
Antidote du jour:
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Um, Gretchen, Gretchen, Gretchen. I see you did consult your background files. Did you see this, where’s the FDIC, the DOJ, the IRS?
“Other documents from the subprime unit also show that Countrywide was willing to underwrite loans that left little disposable income for borrowers’ food, clothing and other living expenses. A different manual states that loans could be written for borrowers even if, in a family of four, they had just $1,000 in disposable income after paying their mortgage bill. A loan to a single borrower could be made even if the person had just $550 left each month to live on, the manual said.
Independent brokers who have worked with Countrywide also say the company does not provide records of their compensation to the Internal Revenue Service on a Form 1099, as the law requires. These brokers say that all other home lenders they have worked with submitted 1099s disclosing income earned from their associations.
One broker who worked with Countrywide for seven years said she never got a 1099.
“When I got ready to do my first year’s taxes I had received 1099s from everybody but Countrywide,” she said. “I called my rep and he said, ‘We’re too big. There’s too many. We don’t do it.'””
http://www.nytimes.com/2007/08/26/business/yourmoney/26country.html?ref=gretchen_morgenson
Pussy.
The NYT article is full of useful detail, but also a classic case of assembling the dots but not connecting them. It’s not simply deflation that the problem in Japan, but _debt deflation_. And despite illustrating this perfectly, the article’s author misses this point and so leaves it unsaid.
The key example in the article is a guy who bought a condo for $500k (in 1995, boy did he get lousy advice). He’d been living well, but the value of the condo cratered. All of his luxuries one by one god squeezed out by the huge negative equity he’s left with. This year, he sold the condo (in what may be an asset shuffle to a relative) for $185k. He still owes $110k on the initial mortgage and has few alternatives but to file bankruptcy since he can’t pay it. . . . And the article finishes with a filip on how Japan has lost its spirit to borrow money and make a go of things! Now, who would lend this guy any money since one look at his financials makes it clear he’s headed for bankruptcy for a dozen years since? And why would he take the money if offered? Even if Japan’s economy was growing somewhat rather than shrinking, it’s _the debt_ which ruined this guy’s productive career. Hibachi of the Vanities . . . .
Other useful tidbits from the article. Japan’s property values have now finally returned to the level of 1983; that is, they’d returned to pre-bubble levels. This took twenty years because the authorities there moved heaven and earth in a now failed effort to try to prevent exactly that decline. And despite this, property values are still continuing to decline; that is, to undershoot probable real trend values. Accordingly, in Osaka as mentioned (and surely many other places) no one will buy property since they are guaranteed to lose money. There’s no demand because an enormous number are crushed under _existing debt_ just like the guy in the example.
The attempt to prevent price correction on property, and the unwillingness to write down debt have condemned Japan’s citizenry to twenty years of deflation and counting. —And this is exactly what Wall Street and the Beltway Legion have on program for the rest of America, twenty years and more of debt slavery while the elite uses unlimited access to public money to prosper through carry trade arbitrage and other speculation. “It’s the stupid debt, stupid,” is what everybody in the US should email their Congress apparatchik on a regular basis. We can have no recovery in the US without a debt writedown. Full Stop. And the powers that be are determined that the citizenry will not on any account be permitted that, far less facilitated in that. While the debts of the rich are finessed or forgiven.
Everybody in the country with a seriously upside down mortgage held by a major bank should simply stop paying. The Resolution Revolution. But all those mooks, y’know they’re _still_ thinking/praying that the value will come back in sight of their last appraisal, so they’ll sit in their plastic palaces and become serfs. Sad. The home of the flea and the grave . . . .
Yes, the pervasive rot of high (or, in Fed terminology, higher than they might otherwise be) asset prices. Why should the young men shoulder the burden of the old men? Why rabbit away to overpay for the condos which are falling in price when there is no job security, and you’ll lose your investment in time and money in the property when you lose your job?
With apologies to Yeats, Japan is no country for young men.
And here in the US, why should suburban youth struggle to buy their house, and cars, and pay off their student loans, and have children, when they can live in their parents’ basement, surf the web, and play video games? If prices don’t come down soon the rot will start here too.
Yup. Japan tried everything to get out of deflation that our current elite recommends. Massive government debt to fund make work public projects. Huge increases to the central banks balance sheet. Currency manipulation. Bailing out their banks and large companies. None of it worked.
Deflation is the inevitable result of two things:
Post bubble readjustment
Aging population entering the draw down part of their life cycle.
There just isn’t any way to avoid it unless you want to completely trash your currency and make it totally worthless, and nobody wants to do that.
On the bright side I’ve been to Japan and people have adjusted to a lower consumption lifestyle fairly well. Its no paradise but they have a lot of social structures that have helped.
I found an interesting chart of public, private, and total debt to GDP on this page:
http://earlywarn.blogspot.com/2010/07/how-long-and-how-fast-will-we.html
For some years, private debt has been contracting faster than public debt is increasing. So far, this is not happening in the US, AFAIK. It would seem inevitable, though.
With Japan’s population shrinking, that would mean demand for housing decreasing. They really picked a bad time to stop reproducting.
The top graph is incorrect, but it is a commonly-referenced (incorrect) chart. It is incorrect because it double-counts securitized mortgages as debt, so that the graph begins diverging from reality around 1980. Now, we still have WAY too much debt – don’t get me wrong, I’m not defending our nation’s profligacy – it’s around 250% of GDP (adjusting for the double-counting), but it’s not quite as bad as the graph indicates.
Businessweek
October 14, 2010
Commentary: Mortgages Lost in the Cloud
The foreclosure documentation mess isn’t just a clerical problem. It erodes certainty about property rights–the key to capitalism
By Peter Coy
The U.S. and other Western democracies have grown wealthy over the past three centuries for a simple reason: Their citizens have been able to establish clear title to land, buildings, and other property. So argues Hernando de Soto, the Peruvian economist, in his influential 2000 book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. While people in developed nations can borrow against their property and use the money to start businesses and accumulate wealth, he wrote, squatters in countries like Peru have no such option. Property rights beget prosperity.
That’s why the burgeoning foreclosure mess in the U.S. strikes at the nation’s economic heart. Confusion is so rife that Bank of America (BAC), the biggest mortgage lender, suspended foreclosures in all 50 states to determine whether faulty documents were used to confiscate homes. Americans took their title-recording system for granted, abused it during the housing boom, and let it deteriorate. “Somehow in the last 10 or 15 years, everything that was good record-keeping isn’t telling the truth anymore,” says de Soto, reached by phone while traveling in Copenhagen. “My feeling is this: Your recession is going to last. And it’s going to last, and it’s going to last, because essentially the trust has broken down.”
De Soto may be an alarmist, but he has correctly identified why the foreclosure mess is not a simple clerical problem. It’s part of a broader breakdown in the financial world–the one that nearly caused a depression in 2008 when banks and other financial players couldn’t tell whose balance sheets were stuffed with toxic subprime mortgage debt and whose weren’t. Unable to trust one another, the big institutions pulled back from every asset except Treasury debt. At the height of the crisis, even stalwarts like AT&T couldn’t borrow in the commercial paper market for durations of more than a day–meaning they were only 24 hours removed from default.
…
http://www.businessweek.com/magazine/content/10_43/b4200009860564.htm
NY Times
October 16, 2010
Income Inequality: Too Big to Ignore
By ROBERT H. FRANK
PEOPLE often remember the past with exaggerated fondness. Sometimes, however, important aspects of life really were better in the old days.
During the three decades after World War II, for example, incomes in the United States rose rapidly and at about the same rate — almost 3 percent a year — for people at all income levels. America had an economically vibrant middle class. Roads and bridges were well maintained, and impressive new infrastructure was being built. People were optimistic.
By contrast, during the last three decades the economy has grown much more slowly, and our infrastructure has fallen into grave disrepair. Most troubling, all significant income growth has been concentrated at the top of the scale. The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent.
Yet many economists are reluctant to confront rising income inequality directly, saying that whether this trend is good or bad requires a value judgment that is best left to philosophers. But that disclaimer rings hollow. Economics, after all, was founded by moral philosophers, and links between the disciplines remain strong. So economists are well positioned to address this question, and the answer is very clear.
…
http://www.nytimes.com/2010/10/17/business/17view.html
Middle Class in the USA
http://www.youtube.com/watch?v=OSXNU1_bouc
straight outta the 603!
Richard Kline is incredibly correct. Matches my analysis to a T.
Here’s examples of what’s in store for our food freedom, and our aspirations to break free of corporate control in general, if we don’t fight these thugs.
http://foodfreedom.wordpress.com/2010/10/09/fda-shuts-down-morningland-dairy-despite-clean-tests/
http://foodfreedom.wordpress.com/2010/10/10/chilliwack-raw-milk-dairy-heads-back-to-court/
As we speak the House already passed its Food Tyranny bill, and the Senate’s version was only help up by a temporary obstruction. But it’ll be back after the election.
But unlike with the banks, it seems food is one area where a groundswell of public pressure can help.
Cultural sea change passing worthy of note:
Icon mother, symbolic of old fashioned Profit Driven Vanilla Greed culture, June Cleaver (Barbara Billingsley) dies.
We are left with Lady Gaga wearing a meat suit, Oafra, and a ton of propagandistic fear and hate mongering shit cop shows as Control Driven Pernicious Greed now controls the cultural shaping programming.
Excerpt …
“Barbara Billingsley, mother on ‘Leave It to Beaver,’ dies at 94
As June Cleaver, Billingsley was the model 1950s mom, clad in dresses, high heels and pearls even while vacuuming. ‘She was the ideal mother,’ Billingsley said of her character.”
http://www.latimes.com/news/obituaries/la-me-barbara-billingsley-20101017,0,7345907.story
Deception is the strongest political force on the planet.
“Profit Driven Vanilla Greed Culture”–Aren’t you being a bit hard on the Cleavers?
Shouldn’t we associate them instead with the go-ahead optimistic middle class characteristic of the post-1945 Trente Glorieuse? Sure, the Cleavers were affluent, but that was a condition anyone could attain and things could only get better and better for everyone. It all seems so quaint since in those days, unlike now, there was more social mobility in this country than there was in Denmark. It seems to me that what we we’ve had for the past 30 years is closer to your PDVGC, with the added factor of “Fear”.
No, I am not being hard on the Cleavers at all.
They portrayed what the old fashioned Profit Driven Vanilla Greed wealthy elite wanted portrayed. They were culture shaping tools used to create and inspire wealth building in the middle class so that the planet could be exploited and profit could be extracted by the wealthy elite at all levels of the crumbunist chain. And yes, it did get better for everyone in scamerica and the western world middle classes. But it sucked for the majority of the exploited third world and now sucks for all of us as the pace of the resource consumption that they, the wealthy elite, set in motion is unsustainable.
So now they work to throttle that consumption back, and Control Driven Pernicious Greed now reshapes the culture — and has been for the past forty plus years — to fear and hate mongering divisiveness so as to eliminate the middle and under classes in a purposefully contrived perpetual conflict. It is an incremental increase in the power of the now global wealthy ruling elite. They have done it by attenuating the power of your free speech and consolidating and strengthening it for themselves into the powerful Mr. Global Propaganda and using that power to make you love the fucking that they are giving you on a daily basis.
The masses, enthralled by the propaganda, and still believing they have responsive governments are lapping it all up and back biting each other like crazies. Bursting credit bubbles, fraudulent derivative products and austerity, all well salted with fear mongering and hate mongering divisiveness propaganda are the weapons of the global wealthy ruling elite.
Deception is the strongest political force on the planet.
————
. . . and Eddie Haskell is running America.
… you wish!
Deception is the strongest political force on the planet.
It appears that some persons are doing better than others -and those persons want the less-well-off to back their choices in the upcoming election, to boot:
http://www.theglobeandmail.com/news/world/konrad-yakabuski/us-corporate-profits-soar-but-individuals-still-under-financial-duress/article1759938/
Why do people – not persons – vote against their own interests?
Why do they vote against their self interests? Because they’re propagandized to. In modern-day America this is easy to do, as any politician are lie through their teeth and half the country believes him or her.
Pesky bankster shenanigans getting you down. Reinvigorate your spirit knowing the good old planet will still be there to provide the bare minimum if needed see.
HUMANS are churning through the Earth’s resources at 1.5 times the rate that nature can replace them – and the over-consumption rate is worsening.
The Living Planet Report, by environment group WWF, estimates that the Earth has enough productive land and sea for each person to use 1.8 hectares to draw the resources they need. In 2007, the average person used 2.7 hectares.
http://wwf.panda.org/about_our_earth/all_publications/living_planet_report/
on another cheery note
Australian police probe Gitmo detainee book deal
In his book “Guantanamo: My Journey,” which was released in Australia on Saturday, Hicks wrote that he only admitted to a charge of providing material support to al-Qaida to escape Cuba. He said his only options were to plead guilty to a crime he did not commit or to kill himself.
“To plead guilty was really saying that the system was unfair and I could never win, not that I ever provided support to a terrorist organization,” he wrote.
He also wrote that the U.S. authorities offered detainees inducements including illicit drugs and prostitutes to gain their cooperation.
http://www.google.com/hostednews/ap/article/ALeqM5i10s8si3ZQSOdqbo0qF6JtvB0gdQ?docId=b50b183187c94a6382c732698e4292cb
sending up a trial balloon. Literally.
http://www.brooklynspaceprogram.org/BSP/Space_Balloon.html
And now for an article with some good news…
Retooling an industry – US manufacturing sputtering, MIT rolls up its sleeves http://www.boston.com/business/articles/2010/10/17/us_manufacturing_sputtering_mit_rolls_up_its_sleeves/?page=full
MIT president Susan Hockfield recently launched an initiative to help reinvent the long-struggling industry, mustering resources from across the university and appointing a committee of engineers, scientists, economists, and policy specialists — including two Nobel Prize recipients — to tackle the issues. The goal, Hockfield said, is to recommend policies and practices to advance US manufacturing, emphasizing innovation that will lead to new products, new processes, and, most important, new jobs. “If manufacturing is old-fashioned,’’ Hockfield said, “then we’re not doing it right.’’
The Armani suits have had their day. Now it’s the turn of the sort of people who wear pocket protectors and got laughed at in high school. Thorstein Veblen is smiling.
Long ago now I stopped trying to convince Tanta. She just did not or would not understand. But we now have the transmittal / referral forms that came from the servicers (often via LPS, but not always) and were sent with the foreclosure referral to the attorneys directing the attorney to:
1. use information from a title search that showed the originating lender(almost always with MERS as nominee) as the “owner” of the mortgage; or perform a title search (separate profit pocket right here for the f/c attys); and then to
2. generate (and record) the ‘legal’ documents necessary to show a transfer of the mortgage to the servicer’s principal – most often a trustee of a nothing backed security. (is this the unlicensed practice of law by the servicer? by LPS?)
This is where robosigners came in. But the books were already cooked. There was no independent legal or factual basis for the attorney to fabricate such transfer documents.
from Bloomberg
“Pay homeowners to prevent them from walking away from underwater homes?
That’s the business plan for a startup that has signed up hedge funds and one major bank for its services.
With millions of desperate people struggling to avert foreclosure, it sounds counterintuitive, but Loan Value Group says its approach will help shield banks from the bigger losses inherent in foreclosures.”
Hey what a great growth industry. I wonder what hedge fund has signed up for this? The “major bank”?
http://www.loanvaluegroup.com/
Another link … a fascinating Q&A with Susan Reverby, the historian who uncovered the 1940s Guatemala syphilis study.
Q: What checks are currently in place to prevent similar unethical practices occurring, e.g., with health studies by U.S. companies in the developing world? Do you believe they are sufficient?
A: Frankly I am mostly worried about drug trials that get done elsewhere now which we have little control over. In 2008 78 percent of the participants in trials whose data was used by the FDA for new drugs were outside the United States. According to an ABC report, that year, “54 percent of the 11,944 trial sites were foreign” and “less than 1 percent of trial sites outside the US underwent FDA inspection.”
http://www.bostonreview.net/BR35.5/reverby.php
Where are the Yes Men when you need them? Wouldn’t it be a truly awesome piece of awesomeness if they signed up as vice-presidents at MERS, and then foreclosed on the homes of Geithner, Bernake, Paulson, Obama, Palin, [insert name of villain of your choice here]?
Re: Income Inequality
I am just a layperson…but ironically it would seem that extreme inequality will be difficult to redistribute using the tax code. Why? Human psychology. Can democracy function with extreme entitlement at the top and extreme intimidation at the bottom? Consider this…
Suppose the US has $100 of output and a population of five people…one person in each quintile. If the top quintile earns 84% of the income (this is the TRUTH for the US, as we all know), that means the other four quintiles split the other 16%. With a population of five, that means the top person makes $84 a year, and the other four people each make $4. Yes, $84 to $4 (Please remember…I am a layperson…I had to work it out this way so I could understand it.) Now let’s suppose the government needs $10 a year for public services. To keep this simple (Not for your sake, but for mine…I am a layperson remember…), let’s use a flat tax. Everyone pays 10%. So the person making $84 pays $8.4 in taxes, and the four people making $4 each pay $.40.
Now…Here comes the howling from the top…“we pay more than 20 times as much in taxes”…Of late, the four other people get intimidated right about here and stop asking questions, but let’s push on through this time….It is hard to think with all the loud whining…This is why our democracy is frozen up…If we subtract out the tax to see what each person has LEFT TO LIVE ON, the person at the top has $84 minus $8.4, or $75.60 left, and the four other people each have $4 minus $.40, or $3.60 left. Yes, that is right, less than 1/20th as much to live on. Me personally? I believe these people each do more than 1/20th the amount of work as the one at the top…But let us continue…
Now, a top-quintiler reading this might say that with progressive taxation he/she is getting hit much, much harder than this post is advertising. Let’s allow some sunshine on this…We all know it is NOT really like this, but let us say that we make the top quintile pay the full $10 in taxes…Yes, all the taxes…So…here it comes…That would mean that the the person at the top has $84 minus $10, or $74 LEFT TO LIVE ON, and the four other people each have $4 minus $0, or $4 LEFT TO LIVE ON. Yes, that is right, top-quintilers have 18 times as much to live on AFTER TAXES.
How about it, fellow average hard-working Americans? Do you think that it is HUMANLY POSSIBLE for the top-quintilers to work 18 times as hard as you do? Me neither. But…now….what?
Sorry, but the top 1 percent doesn’t earn the money they make. They don’t work.
Hmmm…Guess lower tax rates didn’t cause them to “work harder.”
See the guy that makes $84 makes it possible through his hard work, talent and overall genius for the other suckers to make their $4.
He’s pulling the sled. He’s the alpha dog. If you tax him then the 16 disappears and the 4 becomes 0.
He should get a tax cut for Christ sake! So he can make 184 and the talentless suckers who feed of him can make 5 or 6 or 8, potentially doubling their income.
I am a professor of economics at Trickeldown College. Hope I’ve helped clear up your confusion. ;)
“Benoit Mandelbrot, who died on October 14 aged 85, was largely responsible for developing the discipline of fractal geometry – the study of rough or fragmented geometric shapes or processes that have similar properties at all levels of magnification or across all times.”
http://www.telegraph.co.uk/news/obituaries/science-obituaries/8069558/Benoit-Mandelbrot.html
Couldn’t resist lifting the following response to the Tauke piece on Daily Caller:
“Federal reserve is the evil behind fannie fruadie and all these corrupt marxist banks.”
Yves should have no trouble cluing in most Americans as to what’s really going on…in about,say,50 years or so.
An old Jesse post on Japan:
http://jessescrossroadscafe.blogspot.com/2009/07/japan-calling-little-more-local-color.html
Frank Rich delivers a melancholic, realistic appraisal of the American political mood in real time.
http://www.nytimes.com/2010/10/17/opinion/17rich.html?hp
Nicholas Kristof presents vignettes fr/ Afghanistan, indicators of how far off the rails US policy has gone since the opportunity presented in 2001.
http://www.nytimes.com/2010/10/17/opinion/17kristof.html?ref=opinion
Unlike Rich I prefer to look on the bright side, such as when the Teabaggers’ heads explode early next year after the new Republican majority in the House has to vote to bail out the TBTFs. A veritable laff riot.
I hope you are wrong. I believe bailouts are the new proverbial “third rail.” Even Democrats are saying, “No more.” Social Security is due for reform, and it may actually happen under Obama — it’s the “only Nixon could go to China” scenario. But bailouts are now poison. Some form of resolution trust will have to be formed.
That’s a really nice pic of an owl in the Antidote. Owls are beyond cool, even if they are incredibly messy birds.