Econ4 Video on the Housing and Foreclosure Crisis (With Your Humble Blogger in a Supporting Role)

Econ4, which is a group of reform minded economists is presenting a series of videos on major topics where it believes our policies are seriously out of whack. From their mission statement:

The economic crisis we face today is not only a crisis of the economy. It is also a crisis of economics. The free-market fundamentalism that attained ideological dominance in the final decades of the 20th century has been discredited by financial collapse, global imbalances, mass unemployment, and environmental degradation. To confront these challenges, we need an economics for the 21st century.

We need an economics for open minds that breaks free of the closed-minded economic dogmas of the past. We need an economics that aims to secure long-run human well-being, not an economics preoccupied with maximizing short-run output and profits. We need an economics that recognizes that we need to safeguard the Earth for our children and generations to come. We need an economics for people, the planet, and the future.

Their latest video release is on housing and foreclosures. Your humble blogger is a participant.

The Bottom Line- Housing from Softbox on Vimeo.

Concurrent with the release of the video, they’ve published this statement:

We are economists who think that the economy should serve people, the planet and the future.

Four million families have lost their homes to foreclosure in the Great Recession. Today another four million or more face the same fate. This devastation was triggered by unscrupulous financiers and exacerbated by government policies that put banker bonuses ahead of homeowner solvency.

Some blame families for foolishly pursuing the American Dream of homeownership. They think government assistance for banks is OK, but homeowners should be left to take “free-market” medicine.

Some claim that the solution for the housing crisis is to extend and pretend, to perpetuate make-believe values on bank balance sheets rather than to modify principal based on real housing prices. These policies may be a dream for bankers, but they’re a nightmare for homeowners.

We oppose treating the nation’s housing as a bundle of assets to be sliced, diced, flipped, and bailed out in pursuit of inflated profits and bonuses.

We call for reality-based, ethically grounded housing policies that restore stability to families and sanity to markets.
We call for mandatory partial reductions of mortgage principal whenever this can keep a family in its home. We call for America’s best run housing non-profits to be paid to provide the counsel required to determine when such modifications will work. We call for civil and, when necessary, criminal sanctions on banks and loan-servicing companies whose employees intentionally obstruct implementation of mandated loan modifications.

We call for amending bankruptcy laws to restore pre-2005 rules that protected families and communities from bank depredations.

We call for immediate return to the rule of law by requiring those who seek to foreclose to demonstrate they have the proper title and rights to do so – with stiff legal penalties if they ignore the law.

In response to recent moves by the top 1% to buy distressed housing and convert it to rental stock as absentee landlords, we call for local, state and national standards to protect families from predatory rental practices.

We extend our support to all who are working in the private, non-profit, and public sectors to promote access to affordable and stable housing as a human right of families and an asset for

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41 comments

  1. Gerard Pierce

    I liked what I was hearing until I hit the speed-bump “non-profit”.

    There are any number of non-profits that were organized and are operated for the public good.

    Unfortunately, there are also a number of non-profits that are just as predatory as anything Corporate America ever invented. There aren’t any profits because the board of directors scoops up all available cash for their own benefit.

    There are some true non-profits currently working the the loan modification area that aren’t very good at what they are supposed to be doing.

    Could we simply look for a few competent ethical companies who will do an honest job at a reasonable price.

    Or is that too 20th Century to work today.

    1. Yves Smith Post author

      I encourage you to re-examine your prejudices. The not for profits in the housing space aren’t even remotely like the ones that have fundraisers for designer diseases.

  2. Dave

    The powerful and rich(Wall St) get socialism and hand outs, the poor get their handouts. The middle class is left fighting for the crumbs of the pie their tax dollars bought.

    I do not see one lick of difference between the two parties at this point, well maybe one…. the democrats do polish their turd so I guess that is different.

  3. skippy

    They could take some of that money for debt relief and spam this video – EVERYWHERE -, a Time square launch!

    Skippy… better than having it gobbled up in legal fees… sigh.

  4. LucyLulu

    Quite good.
    Interesting, easy to understand, thorough, but no so long as to lose the interest of the attention-challenged.

    So who was the gorgeous and articulate woman with the straight blonde hair? She was one sharp lady!

  5. production design

    Once again, the content is good, but the lighting is harsh, ee gad!

    Econ4, are you reading this? Tell your videographer to put a gel on his light or something.

    It’s almost like they’re trying to emphasize how pasty-white all the commentators are (no offense, that’s me too).

    Other than the esthetic critique, quite good.

  6. Brooklin Bridge

    This is what we should be seeing when we turn on the TV. This is what 60 minutes should be about. This is what tingle-legs and Vichyssoise Maddow should be explaining night after night after night.

    Jon Stewart should be making jokes that paint the crack he is living in, or the man who owns the crack he is living in, in vivid technicolor, for the constitutional criminal he actually is and for how he is directly responsible for millions of families loosing their homes.

    Instead what we will get are progressively more and more restraints on our access to and the content we can get from the internet until it looks identical to the pathetic little gossip dramas we are fed on traditional propaganda outlets.

    And worst of all is that is exactly what the country wants to hear; or in the case of anyone with any education whatsoever, nothing. They prefer to simply turn off the TV and not go anywhere near any web site that even whispers propaganda or facts; both be damned. They just don’t want to hear it. Or you get your Obamabots where it’s all going to suddenly make sense once he takes their Queen, or those who rant about lessor-of-evilism and the necessity to swallow all reason until the election is over and then go back to criticizing Obama and polishing their left-wing credentials and eating pop-corn once they feel their “portfolio” is safe again.

    Same in Europe. “la Grèce” is a dirty word in Frogland. Better to just squeeze the eyelids and keep totten on the hopium.

    1. JEHR

      I agree that this information should be shown nightly on TV and on the radio. But, you see, it is too depressing to listen to so let’s just be entertained and that idea is a great dis-service to the public.

  7. Gordon

    Excellent (apart from the lighting).

    An appropriate fix – though not sadly a likely one – for liar loan mortgages would be to write down the principle to a low and affordable multiple of whatever the mortgagee actually earned at the time.

  8. Steven Bradley

    Great video!
    Still, a bit short on the meat and potatoes specifics. It seems to me (I’m a practicing real estate broker with a bit of knowledge of the law) that any legislature could change things today–require a lender that would foreclose at a certain dollar amount to offer that benefit to the homeowner, sans attorney’s fees, accrued interest, and so forth. In other words, a principal reduction that matches the actual value of the property as determined by an independent appraisal supported by comparables is appropriate, unless the record of the banks’ foreclosures show that the bank is taking extra losses–and then the homeowner gets that reduction too. The loans would be rewritten (modified, not redone) at 30 years fully amortized or at the remaining term, with the interest rate currently in place for an “A” borrower. A test period of one year for the new loan seems about right. When this crisis began, I actually went to Washington Mutual and offered to effect a “deal” that would work for everyone concerned (I offered to go and sit down with the homeowner, figure out what they could pay, and then figure out how to help everyone)–how naive I was!
    I do not believe that Congress fully appreciated the kinds of things the banks were doing, but certainly they could have changed course with Dodd-Frank. I do NOT fault the Federal Reserve as much as Congress and the two administrations that have overseen this debacle. It is actually a simple matter to ignore the lobbyist who says, “You’ll wreck the financial system,” and respond with, “Our commitment is to the taxpayers, not to you.” This is old news, but during the beginnings of the crisis, it was clear that borrowers could not pay these loans back, and I believe that the “powers that be” knew this, and acted against the best interest of homeowners anyway. The Congress even refused to enact the simplest response of all when they did the bailouts–to allow/enjoin an individual bankruptcy judge to reduce loan amounts to actual value minus sales costs (eliminate unsecured debt). This act alone would have simply conformed Chapter 13 bankruptcies to Chapter 11 rules (approximately), and created a true opportunity for reorganization for the taxpayers who found themselves underwater.
    As a result of this crisis, I believe that the entire financial system needs to be restructured and simplified, so that risks are calculable, and that borrowers (who were convinced to buy/refinance at the top of a bubble) get the same legal protections as those who made the loans. It is time to “deglobalize” the banking system as to within-country actions, so that the system itself cannot self-destruct inside the country. The simplest way to do this, of course, would be to separate internal lending from investment banking, with no sale of complicated securities allowed in real estate transactions, and no transfer of interests by conduit (MERS) without recording of the actual documents in the county where the loan was made. In addition, all banks must hold their loans in their own portfolios, with servicing held there as well, and subject to much stricter rules for both lending and servicing. This would go a long way to resolving problems for the future. It’s like trying to unscramble eggs, but it’s necessary.

    1. Susan the other

      SB, you may have been naive but you were/are right. It’s pretty clear to me too that massive foreclosures were part of the plan as far back as 2005. We need to keep the mortgage industry a national, not a global, enterprise. I ‘m wondering why we can’t kill two birds here. Retirement funds are looking for returns and all they get is ZIRP+. But those funds could go into the direct mortgage business, insured by the government, offer a good deal to borrowers and get a much better return for themselves. I think retirees should also fund student loans at a very low rate. Then, as the economy starts to function again, employment rises and my favorite austerity twit, the doddering former Senator from Wyoming, Mr. Simpson, will become too self conscious with shame to do any more gangnam – advising the young and the restless to bludgeon the old.

      1. Aquifer

        From your point about it being “pretty clear” that foreclosures were “foreseen” (my word) as far back as ’05, i assume you are referring to the new bankruptcy law that was passed then making it harder for folks to declare it?

        I remember seeing an old interview with Warren in which she described how she had spoken with Hillary about it on a previous occasion and they both seemed to agree on opposing it, so Warren said she was “disappointed” when Hillary wound up voting for it …

        Seems to me this law could well be argued as a “smoking gun” against the argument that “no one foresaw” that the excrement was going to hit the rotating air distribution device in the near future …

        1. Aquifer

          Heh, heh, that was before Warren got bit by the political bug – I wonder what she would say about/to Hillary re her support of that bill now …

  9. Teejay

    video message: This vid can’t be played on my setup [Firefox
    & Adobe flash player 11.5.502.110]. Switch to browser that
    provides native H.264 support or install Adobe Flash Player.
    Can anyone explain this? I’m running AFP.

    1. Aquifer

      I suppose this would be obvious – but by any chance are you running No-Script on your Firefox – and forgot to click on “Allow Vimeo” in the pop up menu?

      I have an ancient version of Firefox and Flash Player (can’t upgrade on my system) and though that shuts me out of a lot, I CAN play this video …

      1. Aquifer

        Forget that Idea – i just tried “forbidding” vimeo and vimeocdn and all i got was a blank screen – no message like yours, sorry ’bout that …

        1. mookie

          if you’re running noscript you’ll have to allow nakedcapitalism.com, vimeo.com, and vimeocdn.com in order to see the video.

          1. Aquifer

            I know that – that is what i first suggested to Teejay – but then i tried an experiment “fobidding” it and came up with a blank screen which is NOT what Teejay described as what (s)he was getting – at that point, i realized that my suggestion was worthless re Teejay’s problem, and thus wrote the “forget it” comment ….

    2. Hypothetical_Taxpayer

      My Firefox wouldn’t run Flash even tho I had re-installed Flash many time at the latest version (all this year). After researching it a while I found some info saying the combo of Win 7 64 bit, Flash and Firefox don’t work. So I went back to IE. Then a couple weeks ago I open up Firefox and it said there was an upgrade to ver 17 (it was 13 a few months ago?!). I upgraded and Flash started working.

      Also, H264 is MP4 – Firefox doesn’t natively support this because royalties are required. So some kind of player is needed.

  10. Susan the other

    This was a great video. Yves’ “That’s ridiculous!” (re blaming the borrowers) was as good as it gets. More please. Borrowers were as defrauded as anybody else. And so when Econ4’s manifesto says “We oppose treating the nation’s housing as a bundle of assets to be sliced, diced, flipped and bailed out in pursuit of inflated profits and bonuses” I’d like them to add:

    And because this frenzied immoral practice actually ruined the housing market and literally caused both bubble and crash and the subsequent depression with 15% unemployment, we believe the only fair thing to do is offer to each mortgage borrower a new loan at ZIRP, interest only with an option to defer payment until the housing market recovers and they themselves have a job with a livable wage.

  11. Aquifer

    Great video! Just the right amount of scoffing at the absurd claims being made as to whose fault it is, together with an appropriate soupcon of indignation, not over the top, along with some very simple, direct, to the point, PLAIN ENGLISH explanations that are directly responsive to the claims being made on the BS MSM stuff that people are getting their “facts” from, at a level that even I can follow – LOL

    I think that is really important – the point about dealing directly with the MSM crap, point for point, this is a great format ….

    This is great – I think you have a future on the “big screen” :), everybody ought to watch this!

  12. Aquifer

    I have a question – did the folks who made this have to get/buy permission from the MSM to use those “news” clips?

    1. Aquifer

      That response was for me?

      I am familiar with the fair use concept – but also quite aware that it can be, and has been, i do believe, successfully challenged – there are limits to what and how much can be used …

      I like the device used – point, counterpoint, each right from the speakers mouth, no “according to”, etc – and think this a good device for any group to use – even a small poorly funded one – but ya gotta be careful, ISTM … One party’s “fair use” is another’s “copyright infringement” and i don’t know that the boundaries are absolutely and meticulously defined so no one can screw up unintentionally …

  13. Pelham

    But WHY did the financial sector end up as the tail wagging the dog? Greed is nothing new in human nature or history, so that’s not an answer.

    I think the answer lies in capitalism itself, which depends on its need for ever accelerating return on investment not just to grow but to avoid utter collapse. When productive investment can no longer generate this accelerating return, capital naturally turns toward non-productive or fixed investments (such as real estate), which is purely speculative with no upper limit on its (fantasy) value.

    It happened in Japan in the early ’90s, when, for instance, the handful of acres of the Imperial Palace grounds in Tokyo were valued more highly than all the productive assets in the entire state of California. Of course, this was absurd. But it was a natural outgrowth of capitalism.

    Capitalism has roots going back centuries and can be defined as almost any kind of economy that includes money, debt and the objective of wealth accumulation beyond what’s required for subsistence. As such, it’s immensely transformative, and in some good ways. But the downside is that wealth destruction — to clear the way for new rounds of rapid wealth creation — is part and parcel of the system and cannot be avoided no matter how much regulation is put in.

    Over time (as we’ve seen) regulations is canceled, avoided or forgotten or the regulators are co-opted. Or people and politicians forget, thinking “this time is different.” And we have the same results.

    Rather than once again strapping yet another set of regulations, complex or simple, on the old system, I’d say it’s high time for a new system.

  14. dolleymadison

    Excellent, Excellent. Unfortunately the next wave of carnage is being planned as we speak as Banks continue to pool and sell mortgage loans into MBS with MERS as nominee. I would like to say they learned nothing – but it is clear what they have learned is the rule of law does not apply to them and criminality has BECOME the NEW rule of law. May God rest our souls…(those of us who still have one).

    1. Aquifer

      dolley –

      i suggest “they” have learned a great deal and that is that they can get away with considerably more than they might have thought, the sky (and beyond) appears to be the limit. It is WE who appear to have learned nothing

      1. Aquifer

        Hmm – what a dunce i am – on reading your comment again, i realize that is what you just said, duh … I just added the last sentence … :)

  15. Paul Tioxon

    Sean Hannity needs to shut the fuck up. And the other moron, the nobody put a gun to their head needs to shut the fuck up. The first job I took in the mortgage business required some training. And here is what the owner of the company said in the mid 1990’s. “Here is your processor and here is your underwriter. The underwriter is the sheriff. You can take an app and gather all of the docs with he processor and submit it the underwriter for approval. I loan money, which means, I want my fucking money back. I don’t give it away, I am not a philanthropist, I am a mortgage banker. The underwriter is the one who makes me feel comfortable in lending, because they only lend money that has an almost 100% chance of coming back to me. I don’t lend money to someone who I think will NOT pay me back. I lend only to people who I think will pay me back. And I repeat: I want my fucking money back.”

    End of mortgage lending from 30,000 ft in the air view. But something changed. Subprime lending went from underwriting, even if with expanded criteria: higher debt ratios, lower credit scores. But there was never the assumption that this loan will never be paid back. That all changed with the no-doc loans that required no income verification, no asset verification. Just an appraisal and a title search to make sure there was still some equity left to lend against. That is where the toxic assets were bred.

    Invoking the reasonable man view of human nature: if a lender was willing to lend, you assumed that you were credit worthy. No one applied for a loan thinking that the lender did not want to be repaid. Many a borrower may have prayed for lower rates, lower fees, better terms in general, but no one wanted to be approved for a loan that they could not in reality afford. No one thought they would be granted a loan by a bank who believed they would not be repaid. That would be unreasonable.

    The authority of banks, and the legitimization they offered to the borrower, that they were credit worthy, came solely from the bank. People applied for loans, they did not come into banks and demand money. This is probably the only consumer transaction where the customer does not come in with the money and buys whatever s/he can afford, based solely on their own discretion. In the lending process, the consumer comes in and seeks approval by applying for the product, money, and may only get the money upon the discretion of the lender. It is the reverse of every other consumer buying experience. By its very nature, it is not even in the same category of a buyer and seller in a market, since money itself is what is being sought and money is not the medium of exchange. It would seem mortgage lending is an anomaly of the market, where the means of exchange is transformed into something different altogether.

    1. just me

      I wanted to know what Michael Moore said back to Hannity, went looking — here it is:

      http://www.youtube.com/watch?v=fjr5zlNFpg0

      Also greatly appreciate this paragraph of yours — it’s a point I don’t hear often enough:

      …if a lender was willing to lend, you assumed that you were credit worthy. No one applied for a loan thinking that the lender did not want to be repaid. … no one wanted to be approved for a loan that they could not in reality afford. No one thought they would be granted a loan by a bank who believed they would not be repaid.

      And what Yves said @3:43 in the video:

      YVES SMITH: Normally in history, when lenders were that incompetent, they went bust, and that was capitalism. And now instead we have a system where the lenders who are so grossly incompetent that they should have gone bankrupt are propped up. That’s socialism for the rich. But somehow we don’t call it that. To cover for the fact that we have socialism for the rich and the incompetent, we’re instead blaming the borrowers to disguise that fact.

  16. Bhikshuni

    Excellent job! Short and concise and to the point! Let’s make this video go viral!

    I wish you all had another one for the catfood commission/fiscal obfuscation!

  17. John F. Opie

    Goodness.

    Fundamentaly correct, especially what Yves said: but it’s not the entire story.

    There’s two fundamental rules in government tax policies: if you want less of something, tax it; if you want more of something, subsidize it.

    The Power That Be (aka Congress and assorted Presidents) wanted more Americans to own homes. A fine and noble sentiment. They required the banks to make loans that otherwise would not have been even considered (where do you think subprimes came from?) and told the banks that subsidizing the risks that come from increased defaults (and people who buy houses that they cannot afford always do default) had to come out of their cash flow.

    The banks, of course, decided that sucked and found a way of finding someone else to pay the subsidy, largely by forgetting to tell the people who bought the RMBS that there was a risk premium that wasn’t included. Well, actually, they committed fraud to do so (which is why Ms. Smith is absolutely correct when she points out that there have been no criminal prosecutions: they’d have to put virtually everyone in the business into the dock to find the guilty.

    Those from the U of Amherst are also largely correct: the banks have, and I think no one can seriously contest this, proven, without a doubt, that they, if allowed to operate as they have, have been proven to be seriously irresponsible. What they have forgotten to add is that the decision to “make” house ownership more affordable is just as irresponsible: failure to address this, however, just makes it all that more likely that the whole fecal matter meets fan will occur in much the same manner as before.

    If you want more home ownership, subsidize the buyers. Given first-time home buyers real money to reduce the drain in the cash flow to a level where there isn’t any real danger of them going into default except through incompetence and stupidity. This, of course, may have negative effects on housing prices (as in increasing them, since first-time buyers have more money, meaning that lower-cost housing (which has lower profits for builders) may be less available). Instead, we told the lenders that they had to subsidize via their other business activities, so is there any wonder they got out of the loan servicing business so as not to have to bear the losses?

    One lesson that really should be learned is that when the government intervenes into markets, even to try to address injustices such as redlining, usually ends very, very poorly. This time is no different.

    While I absolutely agree that those who are being foreclosed on are going through their own personal hells, the moral risk here for the entire housing market is enormous, especially, and I repeat especially, if there are no prosecutions for fraud of those who were responsible for this total CF. The banking reform that is proposed in the video is a gosh-darn good start; criminal prosecutions are absolutely needed to restore faith in the system (and the complete and total disregard for the rule of law that is endemic and which has been so well documented here); government interference in markets needs to be reduced to a bare minimum because, fundamentally and inarguably, these policies have been shown to be FUBARed and bear no small blame for the catastrophe that is the US housing market.

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