Friday, July 18, 2008

Musings: Shake Ups

Blustery is the key word for today, with brisk trades gusting up the valley, roaring through the camphor trees and shepherding large cloud banks that totally obliterated the interior mountains and did a very good job of muffling the rising sun.

Last night, the wind pushed dark clouds quickly across the round, white face of Mahina in her fullness, and I almost expected to see witches on broomsticks flying, too, it was such an unsettled evening. But then, that’s what wind does: it shakes everything up.

Speaking of shake-ups, while listening to Democracy Now! yesterday about the nation’s enlarging economic woes, I heard news of yet another unexpected consequence of the mortgage foreclosure crisis: West Nile virus.

That’s right. In an apocalyptic scenario that even Hollywood missed, perhaps because it hits too close to home, California officials are worried that water left standing in the swimming pools of abandoned, foreclosed properties is creating a prime breeding ground for mosquitoes, thus increasing the risk of West Nile infection.

Democracy Now! guest Danny Schechter, author of “In Debt We Trust” and the forthcoming book “Plunder: Investigating Our Economic Calamity and the Sub Crime Scandal,” is quoted in the program transcripts as saying:

And this has already caused cases of West Nile fever in California and in Florida. There’s fear even of malaria. So, the consequences of this crisis are just being felt by many, many people, and it’s not pretty.

Fascinating how these things play out in ways we never even could have imagined.

Meanwhile, Max Fraad Wolff, economist, writer and instructor at New School University, pointed out that the Bank of Scotland “is estimating 150 to 300 small to midsize [bank] failures in the next eighteen months.” He also expressed his concerns about the situation at Freddie Mac and Fannie Mae, where the government is planning a major bailout:

And the reason this matters, writ large, is because our housing markets are already sliding, and if anything happens to make them less robust, less able to buy and back mortgages, you can go ahead and expect maybe another five to 15 percent decline in the average house price. And there again, it’s the death of the middle class and the death of the American dream, because if your house is your major asset, it’s already slid 15, 20 percent, and the structures that help support it, particularly low- and moderate-income homes, are weakened, you can expect further pain, further damage and further trouble.

Yet our President continues to act like everything is A-OK, prompting the question, is he stupid, clueless or just an accomplished liar? Here’s his take on things:

I think the system basically is sound. I truly do. And I understand there’s a lot of nervousness, and—but the economy is growing. Productivity is high. Trade’s up. People are working. It’s not as good as we’d like, but—and to the extent that we find weakness, we’ll move. It’s one thing about this administration: we’re not afraid of making tough decisions.

Of course, it’s not surprising that the man who morally bankrupted our nation with Guantanamo, torture and a war waged on false pretenses has also bankrupted us economically, too — and much of the fallout is due to the kind of greed and disregard for the law that has characterized the Bush Administration.

As Danny Schechter observed, when he came on Democracy Now! back in August 2007:

I said that this is not just a market correction, but a criminal matter, and I called subprime “subcrime.” The FBI seems to agree with me now, and they have 1,200 investigations underway, including an investigation into Bear Stearns and to what happened there, IndyMac, and other banks. So, I think when the dust shifts, you know, finally, we’re going to find out that this is a criminal action—cabal, really—by people in the market who were out, driven by greed, to make as much money as they can. The victims of all this can be seen in the mounting foreclosures that are sweeping the nation.

Yet in the midst of all this evidence of the utter failure of Republican principles and policies, a Bush clone (you know how the clones age faster than the originals) is just 8 percentage points behind Barack Obama in the presidential race.

It seems that many voters, like rats, cling stubbornly to a sinking ship.

Finally, on a local note, I was surprised to read in today's Garden Island that Kaipo Asing, who was sworn in as interim mayor yesterday, is planning to deal with the tour boats in Hanalei, where Mike Sheehan is again promoting the fiction that tour boats can legally launch from his facility on the river. The paper quotes Asing as saying: "“The Hanalei boating situation will receive my immediate attention.”

Now this ought to be interesting.


Manuahi said...

Joan, I know how much fun it is to bash our current President, and how easy he makes it, but the subprime mortgage crisis would have happened regardless of who was in office. It primarily the result on the longest upward inflation in real estate prices in our lifetimes coupled with the easy credit the health of which depended upon a continued inflation. Monday night quarterbacking makes it easy to see how much trouble would come from when the market eventually had to level off and dip somewhat as it always does after a period of inflation. The unknown factor here was the magnitude of the subprime loans being made; loans which should really never have been made in the first place mainly because the borrowers weren't properly qualified. It is the magnitude of the subprime loans that has effected the overall real estate market further exacerbating what really should have been only a market correction. Remember, we’ve had plenty of these corrections in the past. But people are people and everybody wanted to get into the action and loans were made the quality of which were solely dependent upon the ability of the property owner to sell off property if they got in trouble. Under the customary underwriting requirements which FHLMC and FNMA employ, borrowers would be qualified firstly by the amount and stability of their income, an important factor in borrowers being able to weather a downturn. So, when the primary safety catch is sale of the property and the market is in correction, the primary factor on which the loan was made is ineffective; there’s no solution. That's what we have now. And this would have happened no matter who was in office. It just happened to happen during a Republican administration. Could well have happened in a Democrat administration. Also, understand that laws which could have been in place to limit the nation’s exposure to this sort of mishap were not proposed or enacted by a Democrat-controlled legislative branch. Just like the REIT crisis in the 70s, this trauma should have been predicted, but wasn’t and either everyone is responsible or no one single party is. That’s the sad truth.

Anonymous said...

Would a fall in home prices really be the end of the middle class? Wouldn't it makes homes more, you know, affordable, and enable, for example, young people to stay in Hawaii and own their own homes rather than having to move to Las Vegas?

Andy Parx said...

Are you kidding me- no matter what administrations was there? This administration perfected the art of deregulation especially in the fiscal economic policy sphere. This is the administration that routinely replaced inspectors general in each department with unqualified free-marketeering political appointees who drove out the competent people in each department. This is the administration that rewrote reports, vetoed all regulatory legislation and whose justice department sat there and watched the outright fraudulent practices of the lenders and did nothing. This is the administration that passed industry written deregulation legislation.

This didn’t just “happen”. It was designed to help the rich rip off the poor suckers who though that if it was legal and if the banks were willing to loan them the money and put them in their own home it must be ok because they thought the regulations were in place. Instead they had been gutted and rewritten so that “anything goes”. And now when it all hits the fan this administration bails out the banks- the crooks- rather than the home owners- the victims.

Anonymous said...

If you want to know how the current administration is treating economic news all you have to do is note the way they handle and spin the information.

It was rather typical last week when Bush scheduled a press conference simultaneously with Berneke's report to congress. The Fed Chairman was telling congress just the opposite of what bush was saying from his podium!!

Manuahi said...

Andy me boy! So, you're saying that, in effect, the Democrat led Congress is ball-less against the Republican Administration? They had no ability to develop legislation to regulate and prevent this speculation-caused crisis that they, of course, had the foresight to see would happen? Either the Democrats are powerless or they were conspirators the way you seem to describe it.

Andy, most folks are able to see that the media loves to cover and sensationalize the less-than-common cases of non-speculative property owners who are now losing out. Like the recent story about the woman who is losing her home because she hurt her back, can’t work and, since she financed close to 100% of the cost of her home, cannot sell it because the home is now worth less than she owes on it. Those sorts of circumstances happen all the time, but in an expanding market, she could have dumped her house and pocketed some cash. Now she’s screwed and destined to make a short sale all because she got a sub-prime loan which met her needs at the time but required insufficient equity for her own safety. Had only conventional loans been available, she could never have bought a home in the first place.

The reason why this is all happening now is because of the fair-weather lending practices that never occurred anywhere close to this extend in the past. Of course, some folks would yell and scream today if they couldn’t qualify for a home because their financial stability was wanting. But conventional real estate lending practices require a healthy 20% equity from the borrower plus a comfortably sufficient and stable source of income to make the payments. Conventional mortgages are based on the borrower’s ability to repay from their income, not from the sale of the collateral. That’s the difference between a conventional mortgage and a sub-prime one. Most sub-prime loans were made based on the borrower’s acceptable credit history, but also on unverified “stated” income and financed, in many cases, 100% or more of the property cost/value.

Personally, I have little sympathy for a lot of these folks losing their homes now because, contrary to how you seem to see people, I think they can read, have a mind of their own, and that most people who got subprime loans knew exactly what they were doing, bet on the come and lost their asses due to unfortunate market timing.

This was all primarily driven by all the money flowing into baby-boomer retirement funds and other investment funds which were looking for new vehicles in which to invest. And while the RE market was expanding (inflating), the sub-prime loans looked like a good risk in relation to the high rate of return provided by these loans. So, the mortgage brokers, the middlemen simply put, offered these loans to the public because the fund managers had all this money they needed to invest. So, everybody was just trying to meet a need, fill the demand, and no one truly recognized, or faced if they recognized it, the inability of these instruments to weather a downturn or leveling off as was destined to happen,as has always happened in the past after a period of grow.

BTW – Hawaii isn’t experiencing anywhere near the downturn that the mainland is, because the demand for Hawaii real estate is still strong. It’s strong at the low-end (“affordable” part) of the price range because demand continues to out-strip supply. It’s slower but still healthy at the high end because so much of the money buying those properties is not vulnerable to economic downturns. Sure, foreclosures will increase here; have increased here, but far below the magnitude of the mainland. We’re just going to experience the same thing we’ve always experienced when expansion out strips the growth in personal income and has to pause for income to catch up. But the additional factor of the popularity of property here in Hawaii with foreign wealth may cyclically fluctuate, but it won’t go away in our lifetimes.

Anonymous said...

Manuahi -- it's convenient to gloss over the roots of the easy money to absolve your buds of their culpability.

#1 problem -- Alan Greenspan. Easy money was his middle name. He even pimped for GWB's tax cut that gutted the value of our money (along with his stupid war for Jesus and Israel). He's a Republican at heart and always has been. Keep pumping vodka into the punchbowl and hope the party never ends.

As for the Dem Congress. The R's have had the House since 1984. Money bills start there. D's could push back when Slick Willy had the veto pen but the 4 trillion dollars in debt run up in the last 7 years belongs to the R's. Just like the 3 trillion from the Reagan/Bush41 era. People named Bush and Reagan have overseen 70% of our current national debt going on to the books. All the while screaming Dems will ruin our financial system.

Better regulation could have headed off the subprime mess. Raising standards on loans and more careful regulation of banks would have done a great deal of good. However, the Rs, especially when Phil Gramm was head of the Senate Banking committee did everything they could to gut banking regulation.

The markets got what they wanted. The power to do as they pleased. As it turns out, the markets ain't so good at running things for the long term. Not surprising when individual compensation is mostly set on short termism. So now we pay. I'm glad to see these captains of industry have their billion dollar stock holdings evaporate. Unf. a lot of 401K and other pension money when up the same spout.

Hawaii is just late to the market puke. It's coming here. A lawyer I know says his office has doubled their staff to handle the coming wave of foreclosures in the next 3 years. POS single wall houses that were $250K in 1999 and $750 in 2005 will be foreclosed all over. Hide and watch.

Anonymous said...

Factually, the GOP had the House from 94-06, so they bear the bulk of responsibility for the current mess. But the Dems haven't exactly covered themselves with glory in the last 2 years either.

Manuahi said...

Andy - you miss my point! All the politicians, no matter which party, really f--ked up on this one. I'm saying you can't simply pass it off as a Republican thing when the Dems were just as asleep at the wheel when it come to thinking about what eventually had to happen.

Andy Parx said...

Not me Manuahi. The Dems are the Repubs are the Dems are the Repubs- they’re just two branches of the same corporate party.

That said to blame the victim is silly. I consider myself pretty well versed in the law but I was astonished when we considered buying a house during the craziness as what was legal and what it would allow us to do with good credit. No income verification? What is that?

And we could have bought a million dollar house and gotten two years of affordable payments (on a 50 year mortgage when we’re in our 50’s- what the heck is that?) before they went up. And the banks and mortgage people were encouraging this telling people that this was a magic market that only went up and we’d be able to refinance in two years. Now people who lied and used- or in many cases wrote- bad laws like that are calling us stupid for believing them.

Every victim of a con job should have known better- the easiest person to con is the one who thinks they’re getting a great deal and something for nothing. But that doesn’t make the con artist excusable just because the guy who lost all his money ion a shell game or three card monte should have known something was wrong.

Anonymous said...

> Better regulation could have headed off the subprime mess. Raising standards on loans and more careful regulation of banks would have done a great deal of good. However, the Rs, especially when Phil Gramm was head of the Senate Banking committee did everything they could to gut banking regulation.

The markets got what they wanted. The power to do as they pleased. As it turns out, the markets ain't so good at running things for the long term. Not surprising when individual compensation is mostly set on short termism. So now we pay. <


Anonymous said...

As much as this subcrime is a mess, I'm wondering one thing: foreclosure is not bankruptcy is it? It seems like you can stop payments, wait for foreclosure, and then walk away from the property. You wouldn't want to do this if you have 20% down, but those with 0% have noting lost, nothing gained. And there are plenty of rentals to move into these days.

I'm sure it kills your credit rating for years, but it seems that there are no criminal penalties, and the lender can't garnish future wages to recoup the losses.

I mean sure, the banking system eats it, but then again, those people were trading the risk, so that's their problem (even if it does weaken the economy overall, the little guy isn't worried about it). In this sense, other than the symbolism and the trauma of the whole experience (and the lack of future credit), there is little direct consequence.

Manuahi said...

"I'm sure it kills your credit rating for years, but it seems that there are no criminal penalties, and the lender can't garnish future wages to recoup the losses." "...other than the symbolism and the trauma of the whole experience (and the lack of future credit), there is little direct consequence."

In California mortgages are "non-recourse". The lender cannot come after you for any dificiency between what it sells your property for and what is owed on it. There it's only a matter of screwing up your credit for 5-7 years. But here in Hawaii, the lender can come at you for the deficiency amount, get a judgement and garnish your any wages (not retirement income) until it's paid in full.

Manuahi said...

PS - Sorry, Andy! It was Anon. (July 18, 2008 8:44 PM) I was addressing; not you.

BTW Anon., they aren't my "buds". I have little regard for any of them.

Anonymous said...

Thanks for the clarification Manuahi.