Here We Go

I can just hear the right-wingers now: “Even liberal France is doing it!” Of course, electing a wingnut as president makes that sort of thing more likely:

The French government has approved a draft law that would raise the retirement age from 60 to 62.

The bill, drawn up by Labour Minister Eric Woerth, would rescind the right to retire at 60, enshrined since 1982. It will pass to parliament in September.

For Lehigh Valley Readers

Gasland will be shown on Thursday, July 15 at 7:30 pm (doors open at 7) at Whittaker Lab Auditorium on the campus of Lehigh University.

Admission $10, and filmmaker Josh Fox will be attending (Q & A after the film). Sponsored by the Southside Film Festival & Clean Water Action.

The New Welfare Queens

From Yves at Naked Capitalism, a description of how these imaginary strategic mortgage defaulters are ruining the country!

A well placed Washington contact wrote:

I was in a discussion with the staff at one of the Federal agencies involved in housing to ask them about the new policies on strategic defaults. It became clear almost immediately that regulators obviously have no idea how to identify strategic defaulters except by asking big banks. They cited the Oliver Wyman study, which is garbage, and other than that had NO evidence except anecdotal reports from ABC News that strategic defaults are happening. Strategic defaulters, they said, are people who won’t even contact their servicer to renegotiate their mortgage. Now, a lot of people are saying that they can’t get in touch with their servicer, so I put the question about whether servicers would tell the truth about strategic defaulters, and they were just shocked that anyone could believe servicers might lie. In other words, the agencies and regulators are simply taking the word of Bank of America and Citigroup that people are strategic defaulters rather than the victims of predatory loans or abusive service.

But what was shocking was the extreme anger they showed. These are bureaucrats, so I expected a kind of boring process-talk. Not so. The guy in charge frequently dropped in lines like, ‘back when people used to actually PAY their mortgages and follow through on their promises.’

It was weird. People in Congress, except certain safe seat powerful Democrats, are afraid of touching the issue, because of the fear of being associated with deadbeats, but also because it is the explicit policy of the leadership of both parties and the administration to continue to squeeze as much blood from a stone as possible.

Sheesh. And people wonder why I am the way I am.

Go read the middle part. Yves concludes:

So why all this hysteria about strategic defaulters? If I were conspiracy-minded, I’d say this is a very clever push to stoke jealousy among what is left of the middle class to keep the focus off the way the banksters wrecked the economy, got lots of cash and prizes, and have every reason to repeat that profitable exercise. So focus public ire instead about the commies in our midst, um, the new welfare queens, aka various forms of alleged housing deadbeats. The immediate reason is that the more people are made to resent the breaks they fantasize their neighbors are getting, the more they will oppose deep principal mods, which historically is what banks always did when they had a borrower get in trouble who still had a remotely viable income.

Why would the banks oppose principal mods? It will force an end to extend and pretend, and when THAT happens, a lot of financial firms will be shown to be undercapitalized and in need of rescue or resolution (as we and others have pointed out repeatedly, Mike Konczal’s conservative analysis of second mortgage portfolios at the four biggest US banks, Bank of America, JP Morgan, Citigroup, and Wells Fargo, shows that they probably need another $150 billion in equity among them, and others contend the writedowns on seconds should be much more aggressive than Konczal assumed).

This push could also be an effort by the GSEs to shift blame, Whocouldanode 2.0: “whocouldanode prime borrowers would default at such high rates?” It wasn’t our crappy procedures and unduly optimistic assumptions, it was the black swan of a change in values!

Now let us say I am wrong and the banks and GSEs are about to embark on new tactics versus defaulting borrowers, say by getting more aggressive in trying to garnish wages when recoveries fall short. That has the potential to backfire massively.

Right now, contrary to popular opinion, virtually the only parties fighting foreclosure are either people who think they can afford the house but are the victims of massive servicing mistakes (I could write a separate post on this, trust me) or people who have filed for Chapter 13 bankruptcies where the servicer (acting on behalf of the trust) tries to block the bankruptcy stay. In 45 of 50 states (this is a simplification but pretty accurate), the mortgage (which is a lien, in some states called a deed of trust) can only be enforced by the legitimate owner of the note (the IOU). Mortgage securitizations had very specific requirements as to what the trust (the securitization entity) needed to do to obtain the note. Trust are very brain dead vehicles, they can only do what their governing agreements permit them to do, nothing more. In short form, it appears to be widespread, if not endemic, that securitizations starting around 2004 began not bothering to do what they needed to do so that the trust had clear ownership of the note (the key item being proper endorsement of the note by all the parties in the ownership chain of the securitization prior to or on the day of closing. Limited fixes were permitted post closing, generally up to 90 days, but they were designed to be narrow and apply only to a small percentage of the notes in a pool).

Increasingly people who are fighting foreclosures are having good results by questioning whether the party who shows up in court to foreclose is entitled to do so (the legal concept is “standing” and is fundamental). Note the person fighting the foreclosure is NOT arguing that they don’t owe the money but whether the party who wants to take the house has the right to. And this is not a theoretical objection; there have been cases where the same note has been sold to multiple securitizations. If the wrong party forecloses, the borrower is at risk that ANOTHER trust will show up, and again demand that he pay the mortgage debt in full. Although decisions vary (usually by state, based both on state law considerations and the temperament of the judiciary), many judges are ruling for borrowers, typically dismissing cases without prejudice (meaning the lender can try foreclosing again if he can get his act together, but typically the issues that led to the unfavorable ruling are insurmountable).

So if the banks and Freddie and Fannie start on a big, and very badly aimed push to go after defaulting borrowers to extract more blood from stones, one outcome may be that they don’t get the headlines they want. Instead of “Greedy guy reneged on his mortgage when he has plenty of dough (be sure to include photo of deadbeat with luxury car or in front of very fancy new residence)” you will get “Cancer victim who had to abandon beloved home harassed by greedy banks.”

But more important, this sort of move will lead incorrectly targeted “strategic defaulters” who willingly gave up their houses to fight the efforts to extract more cash from them. That in turn has the potential to increase awareness of the widespread problems with mortgage securitizations, with the potential to shift to dynamic. What if the owners of private label mortgage bonds come to realize that in many cases, the instruments are effectively unsecured? What happens if Fannie and Freddie’s strategic defaulter push backfires from a financial standpoint (the cost of a badly-targeted collection effort exceeds any increased recoveries?)

And most important, what happens if the public comes to understand the hypocrisy of the banks’ stance, that they are demonizing borrowers for failing to live up to contracts, when they couldn’t be bothered to comply with the terms of their own contracts, which set up procedures for conveying notes to the securitization entity, and in many cases foreclosure mills have forged documents to cover up that fact? Whoever is behind the “strategic defaulter” push may well wind up hoist on his own petard.

Capitalism, the Absurd System

Here’s an article you should read in its entirety, but I especially liked this section:

The unwillingness, so common among U.S. progressives, to embrace a critique of capitalism, to take it to its radical conclusions, including the necessity of a serious class struggle, has another unfortunate political consequence. It opens the door to phony right-wing populist movements seizing the mantle of “radical” opposition to the status quo. With the economic system off-limits to criticism, attention necessarily gravitates to government as the root of all evil. The state must therefore be the source of the peoples’ problems; and indeed, it seems very seldom to operate in their real interests. It is the state, after all, that imposes taxes that seem to provide ordinary people few benefits; runs deficits, the burden of which falls disproportionately on those who gain the least; and controls the military and police. In today’s Tea Party ideology, engineered principally by the right, capital is deemed natural, while the state is unnatural—imposed from without on those who would otherwise be free. The social crisis is then seen as a crisis of too much government, too much interference by state interests in the natural order of things. Capitalism is treated as an elemental force, like the wind and tides, or a mere byproduct of human nature. The reality of power in today’s society is hidden behind the mist generated by this false “naturalism.”

We have not forgotten the basic realities of class. We know that most of those self-identified as part of the U.S. liberal-left are very privileged, relative to the larger working population. The liberal-left is heavily entrenched in the professional-managerial stratum, or the upper middle class. Many of them are employed by the state. Theirs is a class reality that ties them in innumerable ways to the system. They may want significant change, but most of the liberal-left is materially linked, in a way that the vast majority of the population is not, to the existing power structure. Nevertheless, there is no imaginable path toward socialism in the United States today, in which a considerable portion of those who currently constitute the “liberal-left” do not play an important role as key initiators and supporters of a general revolt in society.

The current state of U.S. politics might be described as one in which the right has gained more power by moving right. The left needs to gain more power by moving left. If this means increased political polarization, so be it.

That’s exactly right. The so-called progressive movement is actually conservative, because it wants to maintain the status quo. Its members want to maintain what they have, and they’re never quite as concerned about everyone else.

The Sadness, It Burns

You know, it’s sort of funny. The Wall Street Journal is just beside itself over the plight of millionaires and billionaires trying to stay alive just so their heirs won’t be left with an estate tax bill…

And yet, I’ve never heard them shed a tear over the fact that ailing seniors must sell their homes and spend every penny they have to get into a nursing home, often leaving nothing for their survivors.

Funny, huh?

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