Tag Archives: housing crisis

Who caused the housing crisis? Why do people not believe all the studies?

Summary:  Among our most serious problems is the success of well-funded engines of propaganda at manipulating public opinion, making effective public policy reforms almost impossible.  Here we examine one example, convincing Americans that the government caused the housing bubble.  This is a follow-up to Facts are an obstacle to the reform of America and Who should we blame for the mortgage crisis?

People become easily led once they are trained to believe appealing lies.   Not just the occasional myths in the belief structure of every political movement, such as the Left’s doomster exaggerations about global warming, and their faith in the phantasm of the Social Security Trust Fund.  Sometimes a movement’s leaders find that their followers have abandoned their skepticism, lost confidence in society’s experts, and become credulous about stories that confirm their biases.

It’s a national tragedy that this has happened to America’s conservatives.  Their leaders investment large sums wisely and patiently, building a structure of plausible-sounding institutions to propagate well-constructed propaganda.  After years of indoctrination, gradually they’ve spun increasingly wilder falsehoods.  From misrepresentations about the adequacy of western europe’s healthcare to outright lies about Obama’s religion and citizenship.

So most discussions about public policy, especially economics, devolve into a debate about interlocking layers of falsehoods, exaggerations, and misrepresentations.  Worse, conservative positions have become solidified — immune to facts.  Obama’s citizenship is the extreme example.  Here we look at another:  the government’s role in the housing bubble and collapse.

Below are links to reports that examine the role of the and the 1977 Community Reinvestment Act (CRA) and Government-sponsored enterprises (GSE).  I am aware of no analytical works coming to conclusions other than those shown.  There are many books and articles blaming the government, mostly anecdotal in nature — and not remotely similar in depth of data and analysis to these studies.  Yet to no effect, as faith-based conservatives hold to comforting stories told them by well-funded engines of disinformation.

Introduction to the subject

(1)  An excellent introduction to the subject: “Did Fannie Cause the Disaster?” Frank Partnoy (Professor of Law and Finance at the U of San Diego) and Jeff Madrick, New York Review of Books, 27 October 2011

(2)  One of the two most extensive studies done today: Report of the Financial Crisis Inquiry Commission, a bi-partisan inquiry, January 2011 — Excerpt:

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A briefing about the foreclosure fraud crisis: its origin and impacts

Summary:  An introduction to the mortgage foreclosure fraud crisis.  At this time its size and importance remain unclear, but its evolution and resolution will tell us much about the state of America’s political and judicial systems.  Esp see the links to more information at the end.

The story is complex, and well covered elsewhere (see links at the end).  This is a brief, with emphasis on the wider implications of the crisis.  In a few words, it could have serious effects.  Probably more than Wall Street expects, but less than mega-crisis predicted by the crowd.

  1. Background
  2. The problem first emerges
  3. Scope
  4. Beneficial effects?
  5. Ill effects?
  6. Possible solutions?
  7. Forecasts
  8. For more information (updated)

(1)  Background

The real estate title system in the US is complex, with safeguards protecting debtor and creditor (for details see this by Barry Ritholz).  It’s also local (rules and data are not national).  This system worked well for generations, but collapsed during the housing boom.

  • Loan volume accelerated, overloading key parts of the system.  Appraisals were often corrupted, as loan originators routed business to compliant appraisers.
  • Massive securitization of mortgages ignored these constraints, and erected a pseudosystem on top of it that cheaply processed the high volume of both mortgage origination and securitization (e.g., the Mortgage Electronic Registration System — a faux version of security clearing corporations; see this explanation).  Securitization also broke the link between the originator and end owner, with many ill consequences.  Among other things, this put great pressures on the servicing firms to lower costs.
  • During the RE boom years recoveries on foreclosed mortgages were zero or positive, which meant a low rate of foreclosures (homes could be sold by the owner rather than default on the mortgage).  So the institutional apparatus for foreclosures atrophied.

The the default bust hit.  Massive flow, overwhelming the system — which was never configured for such an event.  Remember, experts believed home prices never decline for more than a calendar year.  The worst scenario considered by the most experts was flat prices for 3 years.

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Here’s an opportunity for the Tea Party: fighting foreclosure fraud by banks!

Summary:   The long recession has brought forth episodes of oppression and lawlessness that cry out for citizen activism.  Another Tea Party.  But we snooze on.  Here’s one such, and reports of the some embers of the Republic which still burn brightly.  At the end are conclusions and links (for those who would like to know more).

Here’s an opportunity for the Tea Party.  Or for a Tea Party.  A large-scale injustice by powerful institutions against middle America, something deserving populist action.  Somewhat like the East India’s Company’s mercantilist policies in colonial America, supported by an unrepresentative government in London.  It looks like mass fraud and perjury in the foreclosing of homes, now supported by a large body of court documents.

 Today’s Tea Party movement was born of opposition to the bank bailouts, so this would be a natural for them.  Except that they’ve been totally co-opted by power elites, so their primary interests are preventing health care reform or lower taxes for the rich.

But there are still a few representatives who actually represent their constituents.  Such as Congressman Alan Grayson (D-FL), who wrote to the Chief Justice of the Florida Supreme Court:

I am disturbed by the increasing reports of predatory ‘foreclosure mills’ in Florida. The New York Times and Mother Jones have both recently reported on the rampant and widespread practices of document fraud and forgery involved in mortgage assignments. My staff has spoken with multiple foreclosure specialists and attorneys in Florida who confirm these reports.

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Rumors of the coming “Slam Dunk” economic stimulus

Summary:  Having missed the last opportunity for legislation to avert the possible double-dip in late 2010 or early 2011, rumors fly that Team Obama plans a massive unconventional stimulus.  I suspect these rumors represent the flotsam and jetsam from serious discussions held in secret.

After the global economy crashed in late 2008, mainstream economists (e.g., Krugman, Delong, Romer) recommended a large fiscal stimulus.  Some (e.g., Krugman) said that Obama would get only one chance.  The resulting legislation fell short of that required to stabilize a decline in many ways like or worse than 1029-30.  Now that stimulus is fading, the US economy visibly slows, and fears of another downturn steadily grow.

The Republicans having decided that “the worse, the better”, nothing can go through Congress without stronger leadership than the Democrats have at present.  What else might Obama and Company do?  Two articles suggest a possible plan of action.

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Housing Update – dynamite to blast us out of our lethargy?

Summary:  Housing statistics are often misrepresented.  Much of the analysis comes from industry shills, and the data during this downturn challenges the long-standing American love of real estate.  Today the Census provides a powerful follow-up to Cutting through the fog to clearly understand the housing crisis.

Today’s bleak news from the Census Department: a stunning and record-high 19 million housing units are vacant (18,943 thousand, 14.4% of all units)!   Most articles about this report only the total “vacant for sale or rent” (one-third of the total vacant), ignoring the important “held off-market” category.

Vacancies are up year-over-year (YoY)  in every category except seasonal homes and vacancies due to recent sale/rental.  The Census shows YoY comparisons to avoid seasonal effects (the data is not seasonally adjusted).

Some fraction — perhaps a large fraction — of this national wealth (capital) eventually will be destroyed.  Vandalized, burned, or deliberately plowed under municipal governments.

A sad ending for an obvious and widely predicted crisis, but inevitable for a nation that allows it’s key public and private institutions to be easily hijacked by special interests for their personal benefit.  That’s true of our wars as much as our housing-lending-WallStreetGambling crises.  Our descendents will ponder with horror the record of a great nation pouring its wealth down the toilet.

Perhaps these events will sharpen our wits and end our lethargy.   Let’s hope so.  The clock is running.

Other posts about the housing crisis

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