Putting Out Fires

I agree with David Dayen and, via block quoting, Adam Levitin – I don’t see why mortgage servicers wouldn’t be equally bound to FHA requirements for foreclosure and HAMP guidelines. But like Duncan Black, I really don’t see why it has to be up to the courts to make this determination. Why wouldn’t Treasury be requiring compliance for servicers? Enforcement is good in any form – regulatory or judicial – especially if it means servicers aren’t stealing peoples’ homes through fraud-driven foreclosures.

But, most importantly, it should be crystal clear at this point that an economy with no rules for anyone is a very scary thing. That’s why lines like this in Ezra Klein’s column on “Obamanomics” is so troubling:

The administration didn’t have time for philosophy. It had to put out fires – and fast.

While I appreciate the correct feeling of urgency, there’s a big difference between just doing something that allows you to say, “We did this and the fire is out,” and doing what is actually the correct thing in a given situation based on the facts and how the given fire was created. While the fire department will respond to a burning building that is started by a lightening strike in the same way as the one that is started by an arsonist, the fire department also will do investigatory work to figure out how the arsonist set his blaze and work with the police department to bring the arsonist to justice to prevent him from starting more fires in the future. Even if you were to stipulate that the administration has succeeded in putting out fires from the economic crisis – something which I would only do in qualified ways while pointing out some fires are blazing stronger than ever – the lack of a consistent effort to arrest the proverbial arsonists who are burning up our economy is a real problem. To put it simply, there are ways to stop economic fires from being started by the same people over and over again: enforce existing rules, investigate how they were broken, and prosecute those who broke the law (and those who continue to break the law) in order to maintain the rules of our economy and the rule of law. And when you set new regulations with the hopes of putting out ongoing fires, make sure you enforce them.

The Obama administration inherited a terrible economic situation. Wall Street was still on the verge of collapse, unemployment numbers would balloon in coming months, and the contraction of the housing bubble would still have years of pain to go through. No president in my lifetime has walked into office with a worse economic situation. But at some point the actions the administration takes have to move beyond thinking that any action they’ve taken is, in fact, “getting the policy right.” I’m not sitting here opining for punishing banksters and lowering unemployment because I like the politics of it — this is what needs to happen from a policy perspective to ensure economic growth and stability. So instead of watching the courts try to rein in mortgage fraudclosure from afar, this is a perfect place for the regulatory bodies in the executive branch to step up and enforce their regulations. Again, this isn’t politics, this is policy in action.

Media Ignoring Unemployment

Jamison Foser at Media Matters:

Here’s an indication of the news media’s failure to treat the nation’s persistent high unemployment rate as the crisis that it is: Even when the economy is the leading topic of media coverage, those news reports haven’t focused on the lack of jobs.

The Pew Research Center for Excellence in Journalism produces a weekly “News Coverage Index” that tracks the leading news stories in 52 different television, radio, print, and web outlets. Since the beginning of November, “the economy” has been the leading topic of coverage five times. That may sound like the media is focusing like a laser on America’s struggling economy, but that coverage has focused on things like the deficit and tax cuts, not on the jobs situation.

Things like this make it very hard for there to be an adequate feedback loop between policy makers and the public. Skewed media coverage fails to represent the actual problems at hand and in turn has the potential to shift public sentiment on economic problems. It’s not shocking that members of Congress and officials in the administration are focusing on the deficit and tax cuts when it’s all the media talks about. Of course, this isn’t happening in isolation. It’s also happening because many people in DC believe that the only way to solve our economic problems are by cutting government spending and forcing austerity measures on working people who have been most hurt by the economic collapse which was, incidentally, caused by Wall Street.

One of the things that made Bernie Sanders’ day-long Senate speech so inspiring was that he was talking about the economy and the path to recovery in a way that was not circumscribed by austerity hawks and Wall Street sycophants. He talked about the real impact of our high unemployment and the reasons our economy is stuck in low gear, citing unemployment 15 times, banks 35 times and Wall Street 19 times. This is how the press should be talking about our economy, but they’re not. Were there to be more politicians in Washington who had the courage to try to challenge this media dynamic as Senator Sanders did, the press would be forced to pay attention and actually report on the real problems in our economy, not the class warfare solutions pushed by conservatives.

Digging Holes

Late last week The Financial Times ran a story about a critical account of the Chinese economy published by Yu Yongding, a Chinese monetary policy expert and academic. Yu’s piece was published in the China Daily, a state-run newspaper. While Yu’s brutal critique of how the Chinese government have built, buoyed and sustained their high economic growth is important for the challenges it poses to the government’s assumptions on growing the economy, once section stands out as relevant to high unemployment and slow economic growth in the United States.

Some local governments are literally digging holes and then filling them in to ratchet up the GDP,” Mr Yu wrote. “Consequently, there are simply too many luxurious condominiums, magnificent government office buildings and soaring skyscrapers.”

What’s remarkable about this is that Mike Konzcal has previously noted that a great, but simple way to help working Americans – specifically, homeowners – is to just fund people digging and filling in holes. It’s not the best policy, but it would work!

There was talk about how fiscal policy can’t move through Congress. I asked them about only 0.5% of HAMP being spent and how that could be used without Congress’ permission. Before I suggested that the remainder of the $50bn be divided into two funds, the Digging Holes Across States (DHAS) fund and the Filling Holes Across States (FHAS) fund, two far more socially productive means of spending the HAMP money than what is currently being done with it, I was told that the entire $50bn is expected to be spent by the time the program is over. I didn’t believe it; we will see.

While it is understandable that putting people to work for the sake of putting people to work is not always desirable after periods of prolonged, meteoric growth, this is exactly what we should be doing in the US now. We’ve had unemployment over 9.4% since June of 2009. While economic stimulus measures have prevented unemployment to continue to rise precipitously, there unemployment isn’t going down. People need jobs more than anything else. What those jobs are is frankly irrelevant at a time when the words “structural unemployment” are being tossed around in some quarters.

As we see in Yu’s critique of the Chinese economy, government does have the power to create jobs that are socially productive, create economic growth, and ensure that the unemployed have jobs. Following the first stimulus bill, there was a lot of talk about there being fewer “shovel ready” projects than everyone had hoped. Of course, you know what is shovel ready? Shovels! Digging Holes Across States and Filling Holes Across States are not long term solutions for building and sustaining economic growth, but during an unemployment crisis, they are better than failing to create jobs and markedly reducing unemployment.


Check out this petition: http://www.stopservicerscams.com

This was recently launched by the folks at Naked Capitalism, along with some other finance blogs. Yves Smith explains:

To further the effort to curb servicer abuses, please visit the website, StopServicerScams, and sign the petition. As we have written, and as experts and foreclosure defense lawyers have reported in Congressional testimony, and as pending lawsuits by attorneys general in Arizona and Nevada allege, servicer abuses are a significant cause of foreclosures. These include including delaying and misapplying payments, using false hopes of pending mods to extract more payments from consumers, and applying compounding junk fees.

Here’s the text of the petition:

To Secretary Geithner, Chairman Bernanke, Chairman Bair, and Comptroller Walsh:

Foreclosure fraud, illegal fees, and just plain incompetence have gone on long enough. We believe that it is time that regulators put some rules on big banks and mortgages. As part of the new Wall Street reform bill, you have the authority to impose rules on new mortgages going forward.

Please stop these big banks from cheating their customers.

Concurrently, Representative Brad Miller is pushing a letter in the House which calls for new foreclosure regulations. It is parallel to a similar call by a group of 50+ economists, including Nouriel Roubin, James Galbraith, and Dean Baker. Mike Konczal explains some of the virtues of the letters from Miller & the economists. But more importantly, he provides a really great, concise explanation for how the massive amount of second lien mortgages owned by the biggest banks is influencing how loan servicers are relating to homeowners.

If there is a principal reduction the second and other junior liens will be wiped out. That’s great for homeowners, lenders, and the community, but really bad for these major banks that made dumb junior loans.

However, if the servicer keeps the homeowner in limbo, encouraging them to make their relatively smaller second lien payment while not making their first payment, allowing servicers to juke the process and necromance a zombie homeowner, that is really great for the largest banks but a disaster for homeowners, lenders, and the community.

We simply don’t know what is happening here. But lenders are very worried, and they are right to be. These simple reporting and process requirements will take care of the worst parts of this information asymmetry that exists in reporting on the second lien. They keep homeowner debt from becoming zombified into limbo, and instead force a serious process, negotiation or resolution and foreclosure, to start moving.

Notice what isn’t on this list: There’s no “give poor people a free home.” There’s no “let’s make excuses for people not paying their mortgages”, or whatever other bizarre thoughts banking lobbyists have about their opponents. There is simply a call for accountability, good information, reliable process, and allowing for win-win, improving agreements to be made by interested parties. Or in other words, an actual market that works for lenders and borrowers, not the corrupted process that works only for the middlemen we have now.

The foreclosure mill is largely being driven by big banks’ desire to squeeze homeowners for every possible penny, reducing the total losses the banks face from “dumb junior loans.” Regulations that aim to stop this sort of behavior, add transparency, and create restore a healthy relationship between homeowners and the banks that own their mortgages is critical to stopping the foreclosure crisis.

Fracking Public Servants

This is going to be all about how much executives at the municipal, county & state level can frack public workers. It’s not limited to Republicans – Democratic executives are leading the charge too (see: upcoming state union negotiations in New York and Oregon). Note that in this instance, Prichard, Alabama is going to be used as a model for voiding contractual commitments made to retired public workers. Once again, contracts for working Americans are worth less than nothing, unlike contracts for Wall Street executives who broke the economy, which can never be broken for fear of “talent” moving elsewhere.