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Topic: WHAT DO ethanol and the subprime mortgage meltdown have in common? (Read 903 times) |
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Walter Watts
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WHAT DO ethanol and the subprime mortgage meltdown have in common?
« on: 2008-03-31 20:57:50 » |
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The Boston Globe
How government makes things worse
By Jeff Jacoby, Globe Columnist | March 9, 2008
WHAT DO ethanol and the subprime mortgage meltdown have in common? Each is a good reminder of that most powerful of unwritten decrees, the Law of Unintended Consequences - and of the all-too-frequent tendency of solutions imposed by the state to exacerbate the harms they were meant to solve.
Take ethanol, the much-hyped biofuel made (primarily) from corn. Ethanol has been touted as a weapon in the fashionable crusade against climate change, because when mixed with gasoline, it modestly reduces emissions of carbon dioxide. Reasoning that if a little ethanol is good, a lot must be better, Congress and the Bush administration recently mandated a sextupling of ethanol production, from the 6 billion gallons produced last year to 36 billion by 2022.
But now comes word that expanding ethanol use is likely to mean not less CO2 in the atmosphere, but more. Instead of reducing greenhouse gas emissions from gasoline by 20 percent - the estimate Congress relied on in requiring the huge increase in production - ethanol use will cause such emissions to nearly double over the next 30 years.
The problem, laid out in two new studies in the journal Science, is that it takes a lot of land to grow biofuel feedstocks such as corn, and as forests or grasslands are cleared for crops, large amounts of CO2 are released. Diverting land in this fashion also eliminates "carbon sinks," which absorb atmospheric CO2. Bottom line: The government's ethanol mandate will generate a "carbon debt" that will take decades, maybe centuries, to pay off.
Actually, that's not quite the bottom line. Jacking up ethanol production causes other problems, too. Deforestation. Loss of biodiversity. Depletion of aquifers. More ethanol even means more hunger: As more of the US corn crop goes for ethanol, the price of corn has been soaring, a calamity for Third World countries in which corn is a major dietary staple.
Senator Charles Grassley of Iowa bloviates that "everything about ethanol is good, good, good," but it plainly isn't, isn't, isn't. The fate of ethanol, including how much of it is produced, should be determined by the decentralized process of free exchange - by the voluntary interactions of countless consumers and producers, buyers and sellers, each acting according to his best judgment and in his own best interest. Instead, Congress and the president, convinced as always that they know best, imposed a single, inflexible, ham-fisted directive from above. The result is that the carbon dioxide they aimed to reduce will be increased, and many people will suffer unnecessary misfortune.
The subprime mortgage collapse is another tale of unintended consequences.
The crisis has its roots in the Community Reinvestment Act of 1977, a Carter-era law that purported to prevent "redlining" - denying mortgages to black borrowers - by pressuring banks to make home loans in "low- and moderate-income neighborhoods." Under the act, banks were to be graded on their attentiveness to the "credit needs" of "predominantly minority neighborhoods." The higher a bank's rating, the more likely that regulators would say yes when the bank sought to open a new branch or undertake a merger or acquisition.
But to earn high ratings, banks were forced to make increasingly risky loans to borrowers who wouldn't qualify for a mortgage under normal standards of creditworthiness. The Community Reinvestment Act, made even more stringent during the Clinton administration, trapped lenders in a Catch-22.
"If they comply," wrote Loyola College economist Thomas DiLorenzo, "they know they will have to suffer from more loan defaults. If they don't comply, they face financial penalties . . . which can cost a large corporation like Bank of America billions of dollars."
Banks nationwide thus ended up making more and more subprime loans and agreeing to dangerously lax underwriting standards - no down payment, no verification of income, interest-only payment plans, weak credit history. If they tried to compensate for the higher risks they were taking by charging higher interest rates, they were accused of unfairly steering borrowers into "predatory" loans they couldn't afford.
Trapped in a no-win situation entirely of the government's making, lenders could only hope that home prices would continue to rise, staving off the inevitable collapse. But once the housing bubble burst, there was no escape. Mortgage lenders have been bankrupted, thousands of subprime homeowners have been foreclosed on, and countless would-be borrowers can no longer get credit. The financial fallout has hurt investors around the world. And all of it thanks to the government, which was sure it understood the credit industry better than the free market did, and confidently created the conditions that made disaster unavoidable.
"No man's life, liberty, or property is safe," warned Mark Twain, "while Congress is in session." Mark Twain was a humorist, but that was no joke.
Jeff Jacoby's e-mail address is jacoby@globe.com.
© Copyright 2008 The New York Times Company
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Walter Watts
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Hermit
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Re:WHAT DO ethanol and the subprime mortgage meltdown have in common?
« Reply #1 on: 2008-03-31 23:03:10 » |
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This might just be the least perceptive article I have read for a while (from which you can of course tell that I skip over most of the Resident Troll's droppings). If I didn't already know much that this article elides and omits, including vast amounts of critical information; or if I couldn't see that this article conflates issues and engages in category errors and innuendo to invert reality, I might be crying for the poor banks and their starving owners. If I didn't know the industry's many rapacious techniques to not only extract 30% returns from people living on the fringes of society and the brink of poverty, but to trap them into that position, including the banking industry having an idea of what was coming (think about the recent changes to the bankruptcy law that this article doesn't mention), assiduously politicking for risk protection from their buddies on the Hill, while maintaining their obscene "risk-driven" profits, I might have some consideration for the poor banking folk. But I do know these things. So I do not cry for them.
This article doesn't speak of the millions of dollars poured into the pockets of the politically connected to ensure that the ethanol mandates were passed - bypassing the voices of thousands of farmers in order to benefit a few massive factory farming operations. Who are now looking for subsidies for the Ammonium Nitrate they can no longer buy because, having burned most of our gas, we are now burning Canada's gas at six times the anticipated rate to make electricity - an insane action enabled by Reagan and his merry men in their mission to rob the poor to serve the rich. After Carter had banned the use of Natural Gas for electric production. It was the first of Carter's protections to go. Just think, if it hadn't been struck down, there wouldn't be a fertilizer crises today.
I could go on and on about this. As you know, it is in field for me. The reality is that it took my living in America and studying energy, social and environmental issues, as the US undergoes a transition from a floundering managed industrial-military economy to a failing fascist state to change my opinion of Carter from "devastating" to "grudging admiration". From considering him one of the worst presidents ever, to recognizing that he was in fact one of the best.
If I didn't know that the poor are poorer, the middle class asset stripped and the reputation of the US in tatters this article might have turned something other than my stomach. If I hadn't seen the misery caused to people engaging in the crime of living in America while black, when helping after Katrina, I might have become overwrought at the potential fate of the banking industry. Even though I am aware of what this country has done to minorities including Blacks, Asians, American Indians and Hispanics, not to speak of the horrors inflicted on the people of other nations, I still feel compassion at the holocaust that is coming, exacerbated by the Ethanol debacle and its knock on effect on food prices. When I hear people of little understanding arguing to dispense of what ought to be their last safety nets, I still wonder whose propaganda they have been absorbing before catching myself and recognizing that it really isn't their fault. Their education was broken, their vision of the purpose of government, as a regulator and a leveler, as well understood in most of the world, is completely lacking.
What seems clear to me is that what this country needs is not less government, it needs some government by the people, for the people; controlling the predatory behavior of their owners (and I use that word advisedly). It needs to discover some charity (and I don't mean casting alms), and most of all it needs to discover a quantum of mercy (which will only happen when there is recognition that they have very little crime while thinking the opposite, that they are vastly overpoliced, and that just because people might engage in crime does not make them less human or in need of society ). I don't think that the USA is going to have the leisure to discover this before many of the deluded trying to argue for less government (rather than less obnoxious and less blatantly a government by the most wealthy for the most wealthy) end up crying for somebody to rescue them from the results that the brutal system they, aided by the completely partisan media that has the USA locked into its claws, have instituted and which is now delivering a lesson in the consequences of hubris. Unfortunately, I think it is already too late to prevent that, although it is still inside the bounds of possibility that the very worst consequences might be deflected. This might be seen as a very bad thing as well as a very sad thing if it were not that is perfectly apparent to most of the world that the consequences have been assiduously sought and thoroughly earned.
All the above reminds me again of the storm over the Rev Wright's remarks which I have been reading and comparing with some of the sainted Martin Luther King's speeches. I don't think much of MLK. He lived a messy life, was a blatant hypocrite and a dreadful plagiarist. But he was much more critical of this society than the Rev Wright; and I think would be even more critical of it today than he was back in the 1960s if he were still around. Possibly with rather more grounds. Of course, he would be more likely to be in jail as a terrorist than praised as a hero and revered as a leader had he survived.
I was encouraged to dig up some of his words by an article in the Guardian. The USA no longer tolerating a liberal press, I would be surprised to find an article like this here. So while it is a sad article, the very fact that it could be written somewhere where there is still some press freedom, is refreshing. Enjoy it while we can. This luxury may not always be available. Look how easily it has gone out of style in America.
Apropos of something, what the Ethanol debacle and the Sub-Prime crash have in common is the 3 to 5 trillion dollars pumped into the Bush Wars by an insane administration at the hands of a lousy system of government. Had the US been a democracy the abysmal government it currently suffers under would not have been possible, even the two party system would have collapsed long ago. Under any reasonable constitutional system, this apology for a government would have failed one of the many no confidence votes it has earned - and been tossed out into the street if not hung from a pole. But the US Press couldn't very well print that. Could they? Why they might be excoriated for it. Of course, a press that is not appreciated by the powers that be is probably doing its job properly. But the appreciation of reasoned disagreement is not an American attribute, indeed, it is positively "unAmerican".
Kindest Regards
Hermit
America lauds Martin Luther King, but undermines his legacy every day
Forty years after the civil rights leader's death, his myth masks how the US remains segregated in practice and attitudes
Source: The Guardian
Authors: Gary Younge
Dated: 2008-03-31
Dateline: Memphis, TN
The National Civil Rights Museum sits in what was the Lorraine Motel, just beyond the shadows of Memphis's skyscrapers and the garish neon glow of Beale Street - the main drag made famous by the likes of BB King and James Baldwin. The first words of the first exhibit state: "Protest against injustice is deeply rooted in the African-American experience." Then come pictures of lynchings, burning crosses, martyrs and heroes, alongside mock-ups of Rosa Parks in the bus and lunch counters waiting to be integrated.
About two-thirds of the way through is a replica of the Birmingham jail cell from which Martin Luther King wrote his letter in response to the local white clergy asking him to stop the protests and leave town. "I must confess that over the past few years I have been gravely disappointed with the white moderate ... who is more devoted to 'order' than to justice," he wrote. "Shallow understanding from people of goodwill is more frustrating than absolute misunderstanding from people of ill will. Lukewarm acceptance is much more bewildering than outright rejection."
And from there begins the gradual incline past the Mississippi Freedom Summer, the emergence of black power and the assassination of Malcolm X, until you reach room 306 - where the story ends with King stepping out on to the Lorraine Motel balcony on April 4 1968 to be killed by a sniper's bullet.
Forty years after King's death, the ability of America to both mythologise the man and marginalise his meaning is all too cruelly apparent. His symbolic likeness is effortlessly incorporated into America's self-image as the land of relentless progress. Meanwhile, his legacy of struggling against poverty and imperialism is undermined with every passing day. Had he lived he would most certainly have been loathed. In order for America to love him, he first had to die.
Nowhere is this more evident than in the stewardship of the museum itself. For while the exhibits showcase King's struggles for equal rights, the executive director of its board, JR "Pitt" Hyde, has been actively working against the selfsame principles. Hyde is a wealthy Republican who worked for the defeat of Harold Ford Jr (a black candidate) in a Senate race that was generally acknowledged to be the most racist campaign of the 2006 elections.
The contradictions between the life's work of King and Hyde couldn't be more stark. King fought racial injustice. Hyde for several years fought a racial harassment lawsuit that was backed by the Equal Employment Opportunity Commission against the company that he founded, AutoZone. King was in Memphis to support a garbage workers' strike over pay and conditions. Hyde has packed his board with corporate types who hire out the museum for functions.
"Nowadays they like the fact that they can sit down to dinner at the site of the King assassination," says circuit judge D'Army Bailey, a founder of the museum who was ousted from the board. "It gives them a good feeling. Corporations want to be identified with it because that kind of identification brings pacification. It's been hijacked."
This cognitive dissonance between what has proved to be morally right and what remains politically expedient is deeply entrenched. The absurdity it engenders will crest over the coming week as the nation watches, as though on a split screen, as King is lauded on one side and Barack Obama's former preacher, Jeremiah Wright, remains lambasted on the other.
Wright is no King. His delivery is too shrill, his demeanour too hectoring, his message insufficiently unifying. Nonetheless, Wright and King come from the same tradition of militant religious leadership that has been a hallmark of black political life for well over a century. Under slavery and then segregation, the church was one of the few places that African-Americans could gather and organise autonomously - giving primacy, for better and for worse, to the pulpit and the preacher in black politics.
"The principal social institution within every black community was the church," writes historian Manning Marable in his book Black Leadership. "As political leaders, the black clergy were usually the primary spokespersons for the entire black community, especially during periods of crisis ... To some extent, this tradition has been characterised by a charismatic or dominating political style."
It is unlikely King would have fared any better on YouTube or the blogosphere than Wright did. King, like Wright, was excoriated for opposing the "senseless and unjust war" in Vietnam. "The reaction was like a torrent of hate and venom," recalled one of his aides, Andrew Young. "As a Nobel prizewinner we expected people not to agree with it, but to take it seriously. We didn't get that. We got an emotional outburst attacking his right to have an opinion."
A few months before he died, King told parishioners at his church in Montgomery, Alabama: "We are criminals in that war ... We've committed more war crimes almost than any nation in the world ... But God has a way of even putting nations in their place." And how would God deal with an unrepentant America? "And if you don't stop your reckless course, I'll rise up and break the backbone of your power."
After a few loops of that on 24-hour cable TV, it's not difficult to imagine the anchors pressuring Bobby Kennedy to disavow all association with such a wayward black preacher. These episodic outcries at the black political vernacular reveal the force and the fragility of King's legacy.
The monied black middle class his movement helped create is imploding. A Pew report last year revealed that almost half of African-Americans born to middle-income parents in 1968 - the year King died - have ended up in the lowest fifth of the nation's earners. This was true for just 16% of whites. Obama's electoral hopes notwithstanding, black America has rarely been more pessimistic. Another Pew poll shows that less than half say life will get better for them in the future - a significant retreat even from the dog days of the Reagan era.
America may be integrated by law, but it is segregated by practice and perspective. Black Americans not only live parallel lives to white Americans, they also have a different understanding of what America has been, is and could be.
"This sense of always looking at one's self through the eyes of others," wrote scholar and activist WEB DuBois at the turn of the last century. "Of measuring one's soul by the tape of a world that looks on in amused contempt and pity. One ever feels his twoness - an American, a negro; two warring souls, two thoughts, two unreconciled strivings; two warring ideals in one dark body, whose dogged strength alone keeps it from being torn asunder."
Given the nation's racial history, such ambivalence should come as little surprise, yet invariably becomes news when expressed from a sufficiently prominent dais.
Turning your back on room 306 in the Memphis museum and walking back through the lynchings, martyrs, crosses and bombed churches, one is reminded of the words of Harlem Renaissance poet Claude McKay. "If the black man is a little bitter," he wrote, "the white man should be the last person in the world to accuse him of bitterness."
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With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. - Steven Weinberg, 1999
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Blunderov
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Re:WHAT DO ethanol and the subprime mortgage meltdown have in common?
« Reply #2 on: 2008-04-01 01:25:22 » |
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"The (subprime) crisis has its roots in the Community Reinvestment Act of 1977, a Carter-era law that purported to prevent "redlining" - denying mortgages to black borrowers"
[Blunderov] Them niggers again. It's their fault. Mind you it took them 41 years to get it right. I'm sure a white man would have managed it in less time. Lazy bastards.
"A Pew report last year revealed that almost half of African-Americans born to middle-income parents in 1968 - the year King died - have ended up in the lowest fifth of the nation's earners. This was true for just 16% of whites."
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Walter Watts
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Re:WHAT DO ethanol and the subprime mortgage meltdown have in common?
« Reply #3 on: 2008-04-01 16:28:51 » |
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I'm just trying to learn, so let me see if I have this straight yet.
Good uses of government power:
1) Subsidies that promote expanding the production of ethanol from corn for use as fuel.
2) Promoting risky mortgage loans to borrowers who wouldn't qualify for a mortgage under normal standards of creditworthiness with dangerously lax underwriting standards - no down payment, no verification of income, interest-only payment plans, weak credit history, etc., etc.
These are good uses of government power.
Right?
Best.
Walter
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Hermit
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Re:WHAT DO ethanol and the subprime mortgage meltdown have in common?
« Reply #4 on: 2008-04-02 01:12:42 » |
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[Walter erected a stack of haybales and then asked] These are good uses of government power. Right?
[Hermit responds but not in the same vein]
There is no mitigation possible for the Ethanol debacle. It was established in a blatantly corrupt fashion, as a highly cynical perversion of ecological concerns, coupled with ignorance and stupidity. Notice that politicians and the media loved it.
There is no mitigating the banking debacle either. It was caused by unabashed, unregulated greed. But it did not have anything to do with Jimmy Carter - or even Bill Clinton. If any one thing can be said to have caused it, it was a product of the Republican urge to deregulate everything to let their supporters feed their fill at the troughs, coupled with unabashed greed on the part of their banking buddies who saw how they were rescued in the S&L debacle, and who even managed to profit in the collapse by stashing virtual funds in Federally insured accounts in their own banks, and who planned to do it again on a much larger scale. They seem to have succeeded too.
Now let us look at housing. The idea that people should own their homes is excellent; particularly when you make it possible for poor people to own decent housing. The easiest and cheapest way of doing that is to set standards and prices for housing, and then make funds available to subsidize interest payments and guarantee that the interest payments will be met - so long as they are charged at a fair rate by the funders. The "fair rate" being set at, at most, 1% over the federal discount rate, as the loan would effectively be a loan underwritten by the federal government with a bit more paperwork than usual being involved in it. This allows the poorest of poor people, who would otherwise be locked out of, and thus unable to benefit from, the heavily subsidized housing boondoggle, to enter the housing market. Such practice vests ownership in property which then gets looked after properly, encourages savings (to liquidate the capital and provide a residual value at sale), and prevents the rape of the poor by slumlords and other slime - like most corporate bankers. When this is not done, housing subsidies such as we have in the USA act as a reversely progressive tax where the poor effectively subsidize the wealthier people who can take advantage of these tax breaks.
Instead what has happened is that in the last 10 years bankers figured out how to capitalize most anything with 4 walls and a door as long as they could find somebody to sit in it. Because of something that I had already recognized in the early 1990s. That a property, being regarded as a valuable good, can be valued, not based on its cost in any way, but only on the highest revenue stream that can be extracted from it. This technique can be used to leverage money that might be put to productive use and which would then justify paying the higher rates agreed to, to obtain the capital in the first place. Of course, the second step is necessary or you will go broke, as you need a revenue stream or capital source to liquidate the assumed debt. American fund managers and other short-cut seeking wannabes took the first step, often tempting short-sighted purchasers that only barely had a pulse, let alone a cash flow, to act as pseudo-independent nominees, because they could sell the property to them for an inflated price and at insane interest rates so long as the person didn't have to pay much up front. Usually this was sold to the prospective buyer on the basis of, "Pay only x per month, and then with the rise in property values you can sell it and pay back the rest leaving you with a profit to buy another house - or you could rent it out and pay the loan back from the rental revenues". To far too many people, this sounded like a wonderful deal. And to an extent it was, they probably ended up paying less on their house than they had paid while renting, because of the Federal and State benefits of having a mortgage. Now the bankers could sell the massively inflated discounted cash flow they had constructed to investors who were seeking a stable return on investments. Wealthy individuals, pension schemes, full-term insurers and so on have traditionally used the housing and utility markets to achieve exactly that result. The trouble was that nowhere in this model was a revenue stream to repay the investors. The bankers had to know that - but I suspect didn't pay to much attention to it, based on the hope that the market would continue to grow forever. After all, isn't that what Americans are taught all their lives?
Now that the houses of cards has collapsed, as all pyramid schemes eventually do, aided and abetted by the two recession reign of King George and his insanely expensive Bush Wars, as well as the vast payments being made to people who produce nothing, it is clear that two groups are in trouble.
The first is made up of the suckers at the front end. The occupants of the shoddy, jerry built, energy inefficient monsters they have been persuaded to buy. Unless they are helped by society now, many of them will add to the already unconscionable ranks of the homeless and dispossessed in America. Many will die. Many will turn to crime. Many will end up in jail at a cost of $75 or more per day to the state. I would argue that it would be much cheaper to keep them in the houses which will otherwise stand empty.
The other people who have lost heavily are the suckers at the back-end. Major investors, public and private, many of them run by insurance and pension companies. They bought the bankers' promises and now find they are valueless. The investors were handed a deal which says that their recourse is not to the bankers that sold them the discounted cash flows disguised as properties, but the valueless properties themselves, without the cash flows. This means that just as the great Reaganite looting of the Social Security fund drastically reduced American pension values, the looting of the pension and insurance companies under Bush, resulting in trillions of dollars in direct damage and even more in opportunity cost, will be born by individuals whose pensions and assets are worth much less today. Unless we step in as a nation to deal with the issue.
Meanwhile, the bankers, who received, up front, the nett present value of the discounted cash flows of the improbable schemes they cooked up, are crying that they are in trouble because their nominees in the houses can't pay the obscene interest rates that the banks established; and the properties can't be sold because the Bush years have made beggars of nearly all (consider that the dollar has lost more than 100% of its value against Gold and oil and 70% of its value against the Euro, Yen and Yuang while Bush has been in office) and in consequence, the property market has collapsed. Somehow, the money the bankers received for the phony goods they sold has vanished. And the politicians - aided and abetted by the media moguls are, once again, going to rescue their buddies the bankers - and are already using the same bankers who created this situation to attempt to redress it. Something tells me that anybody swallowing this scenario has to be stupid, blind or both.
But then, a country that is too stupid to tell the difference between a constitutional republic and a democracy, that puts up with the politicians it not only tolerates but applauds, in a dysfunctional system they not only don't repair but celebrate, has to be rather easy to hornswoggle in other ways as well. It was, I would say, a bit like a feeble minded person dutifully leaving a signed blank check pinned to their front door in the hope that payment to parties unknown of amounts unimaginable would.get them what they needed to receive.
One might feel sorry for them, but there would also be a sense of wonder that nobody tried to step in to protect them from themselves.
Didactically yours,
Hermit
Now consider how to fix the situation properly. How about recognizing this as a massive opportunity?
The existing housing stock is largely worthless in the long term. Now its value is collapsing to approximate that condition in the near term. This is a golden opportunity to recognize the reality that the desuburbification of the continent (to coin a phrase) is desperately needed. We have, at most, 20 years of declining energy at expanding prices to reverse the move to the cities and link food production, manufacture, public transport and utility services into a loose distributed mesh in areas that will still have water beyond 2012 (Which basically means East of the Mississippi) or we will see painful death and destruction on a scale not imagined, let alone experienced in the USA since the elimination of 95% or more of the native Indian population in the 1400 to late 1700 period.
It would be relatively easy to begin using condemned land down the edges of freeways to build new interleaved cities on the European model, with new manufacturing plants, food production environments and infrastructure production factories, as well as all the other appurtenances of civilization (schools, hospitals, museums, galleries, theaters, sports grounds and other places of entertainment, etc) and properly built and insulated housing for the long term, around high speed monorail distribution systems. This process would create an immense amount of value.and would thus be easy to pay for - even out of the annual savings in energy and maintenance. Further effort could go into scavenging, recycling and demolishing existing suburbs, cities and roads, before we run out of the energy needed to restore the areas they have destroyed for other productive purposes. Such a process would create jobs for anyone who could and wanted to work, could subsidize those that couldn't or didn't (perhaps in exchange for sterility), and by integrating the people currently excluded from society, could transform America in very short order.
Right now the problems are not technical or economic. They are social. Should we allow the perception that social problems are insurmountable to lead us to surrender to inevitable horror without a struggle?
Copyright: Creative Commons Attribution-Noncommercial-Share Alike 3.0 Unported License. Hermit 2008
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With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. - Steven Weinberg, 1999
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Walter Watts
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Re:WHAT DO ethanol and the subprime mortgage meltdown have in common?
« Reply #5 on: 2008-04-02 10:53:34 » |
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Quote from: Hermit on 2008-04-02 01:12:42
[Walter erected a stack of haybales and then asked] These are good uses of government power. Right?
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Thanks for knocking my haybale stack down and helping me find the venerable needle in the fallen mess.
Outstanding post Hermit.
Walter
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Walter Watts
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Hermit
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Re:WHAT DO ethanol and the subprime mortgage meltdown have in common?
« Reply #6 on: 2008-04-04 18:25:12 » |
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I have discovered many superb research reports over at The Center for Responsible Lending (NC).
Some I recommend include: 600,000 Foreclosures are Preventable and of course we know that while the Senate has passed a bill that is "loaded with special considerations for mortgage companies and builders that does very little for homeowners who were sold predatory loans by mortgage lenders" they also threw out the "Single Most Needed Step to Help Millions of American Families Keep Their Homes"
Meanwhile, we discover from their December 2006 report, ""Losing Ground [pdf]" that in a rigorous statistical analysis they predicted "that 2.2 million borrowers will lose their homes and up to $164 billion of wealth" (and of course that has turned out to be a conservative estimate although it was widely decried at the time) and in their report, "Subprime Spillover [pdf]", the Center for Responsible Lending estimates that this will cause devaluation of another "40.6 million neighboring homes" which "will experience devaluation because of subprime foreclosures that take place nearby" by an average of $5000. The cumulative "decline in house values and tax base from nearby foreclosures will be $202 billion."
This reflects a loss to Americans of at least $368 billion. If we divide this by the number of anticipated foreclosures, $368E9/2.2E6 it results in $167 272.727 per foreclosure. For a tiny fraction of that amount, most of those foreclosures could be prevented. Particularly if assistance were predicated on rate capping due to the Federal Government's underwriting the risk. Otherwise the situation will probably end up like that in the checking account environment, the subject of another report by the The Center for Responsible Lending. This one, Out of balance, examines the effect interest rates generated by banking practice related to "abusive overdraft loans."
It transpires that "In a system enormously out of balance, fees for abusive overdraft loans have reached $17.5 billion per year, more than the loans themselves, which now amount to $15.8 billion per year." This is because, "These small, high-cost loans are made by a bank or credit union to an account holder who is "in the red," often without the account holder's consent. The bank recoups the loan amount, plus a fee averaging $34 from the account holder's next deposit. Often marketed inappropriately as "bounce protection," the abusive fee-based overdraft loan should not be confused with cheaper sources of back-up funds for checking accounts. These loans can make a small purchase, even a sandwich or doughnut, cost the unsuspecting bank customer over $30, and they can trigger a domino effect of debits that leaves the customer struggling to climb out of a negative balance. Common banking practices increase the number of overdrafts, practices like clearing high-dollar debits before subtracting smaller debit amounts, holding deposits longer than necessary, and failing to decline overdrafts or warn customers at the checkout or ATM if they have insufficient funds. Most banks gave these warnings in the past, and customers want them and would most often decline transactions that were not covered if given proper warning, according to a CRL survey." And yet Congress continues to repeat the need to protect bankers, while even the general public seems to accept that it is somehow their fault, even as more and more Americans decline into debt and the working poor are frequently forced to resort to the rapacious "Payday Loans" industry and their 400% interest rates, the subject of yet another scathing report: "Springing the Debt Trap".
This makes even the 24% charged by many counties on overdue property taxes seem reasonable by comparison.
Kindest Regards
Hermit
Copyright: Creative Commons Attribution-Noncommercial-Share Alike 3.0 Unported License. Hermit 2008
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With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. - Steven Weinberg, 1999
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