Attack of the passive voice

I usually can't keep my gorge down long enough to watch showcase political speeches, so I just read the transcripts instead (when I don't ignore them entirely).  But tonight I did dip in a few times on the State of the Union (aka the Serial Ovation Marathon) and happened to catch this troubling statement from Obama: "Too many bad loans from the housing crisis have made their way onto the books of too many banks."

"Made their way?"

See, this concerns me, because I naively believed the banks took advantage of the massive deregulation they bought a few years back, leveraging themselves to the eye teeth with ludicrously high-risk debt, convincing themselves that the housing bubble was nothing at all like, oh, say, tulips, and studiously ignoring the inevitable long-term consequences in favor of short-term profit.  I didn't realize that what was actually going on was that financial instruments have developed some sort of autonomous semi-sentience and are now migrating around willy-nilly, searching out warm, welcoming institutions and parking themselves on unsuspecting balance sheets there.  Maybe I should check my account periodically to make sure bad loans from the housing crisis haven't somehow made their way onto my books too?

Comments

[Harold M]

The loans have been granted agency by an entity, or entities, that reside in splendid phenomenological discretion behind a mystic veil. There, behind the veil, they were bundled into bundles and transformed from uncertain debt in securities that could back more debt. The veil is more a large moth eaten curtain, really, however it's unkind to point that out. But as I was saying, they have agency now. Hence the creeping and scurrying onto the books. Like the good president, I believe all we need to do is give the banks more money, so that they might acquire a counter-agency and a cleansing of books will take place. The cleansing itself will be an organic expression of the tension between the agency of the loans and the agency implicit in taking steps to, um, do something. We're going to need a thicker veil too.

Obama and his crew have, to date, done worse than the Bush regime. I find it remarkable, really extraordinary. Individually, most of his economic advisors know just how awful their remedial program is and what the consequences of that awfulness will be; Larry Summers in particular. But they're going to stay the course, even though the only thing being salvaged at this point is the self-regard and individual comfort of the banksters. If they plan to re-entrench the banksters' global power, too, they're going to have to do so by cutting domestic entitlements to the bone and putting the screws to the populace of every foreign "partner" we have. In other words: primitive accumulation. Whether that's possible or not, I couldn't say. Obama may lose his nerve and try to dither his way through.

[NomadUK]

Silly boy; that will teach you. Just listen to the youthful, enegetic, post-racism President and all will be well.

[SteveB]

Let's give Obama some credit here. Under his leadership, we've progressed from the Paulson plan of using the taxpayers money to buy toxic mortgage-backed securities from the banks to the Geithner plan of loaning the taxpayers money to hedge funds so they can buy toxic mortgage-backed securities from the banks.

Oh, and we're guaranteeing the loans, of course.

[BrianM]

I think a friend of mine has a point. I would paraphrase it by saying the insanity was from the top to the bottom, with the top using the insanity of the bottom to get rich but the bottom not showing good sense, either. I dsagree with his assumption that regulation would not help. We use to have usury laws-which would have severely limited the number of credit card offers and hence debt loads floating around out there.

NO F--K--G BANK EVER HELD A GUN TO MY HEAD AND SAID "TAKE THIS LOAN". YOU GET A C-L-O-S-I-N-G S-T-A-T-E-M-E-N-T that clearly points out the amount borrowed, the interest rate (or rates, like when they re-set 2-3 years into the life of the loan), and the ultimate cost of the credit (how much your total payments will be). It even states if there is or is not a pre-payment penalty. You know, the things any MORON with a high school, yes - even a public high school, education is taught in 11th-grade home economics. It boils my blood that the stupid, greedy, "don't deny my gluttonous ass anything" generation of middle americans are now going to take an even bigger chunk of the 40% of my salary I never get to see because it is taken for taxes. All this because the stupid, greedy, "don't deny my gluttonous ass anything" generation DIDN'T WANT TO BELIEVE what they were taught in high school, but did instead believe what some idiot working on 3% commission was telling them.

You can de-regulate or even re-regulate banks all you want, but the fact is, people in this mess should have known better. You can't have a half-million dollar house on a $50K salary.

[Harold M]

How many people attempted that? I'm really curious. I can find no better source for information on mortgages than the OCC and OTS Mortgage Metrics Report. The national median price of homes is $220,000. It's pretty clearly not the home buyers that have created this disaster. The banks did. They bundled and rebundled packages of debt, sold them on, mixed them and intermixed with other kinds of debt and essentially destroyed any means of pricing the resulting "securities". It doesn't take much toxicity to cast huge amounts of doubt. The banksters issued paper that was in every way the equivalent of insurance policies on the resulting "securities", but without taking the trouble to ensure they were adequately capitalized to meet pay-offs. A few too may calls and that was that. Panic, followed by real insolvency, followed by knock-on destruction of comparable paper, followed by the ghastly realization amongst them that, uh oh, everyone in their parasitic trade is just as bad. Inevitably, that was followed by demand for bailouts and circling the wagons to prevent any transparency. Once that happened, only then did the jobs start to go and real non-performance start to happen. Herds of idiot consumers makes for a nice media story, but the reality is their major idiocy was in the polling booths.

[John Caruso]

BrianM: You can't have a half-million dollar house on a $50K salary.

Absolutely agreed, as I've written before (and I have another rant queued up about it). There's plenty of blame to go around, but I don't think enough of it is going to the people who actually bought the houses at such ridiculously inflated prices. Yes, they had plenty of encouragement—not least of all from Bush via Greenspan, who kept interest rates at ludicrous lows, thus punishing saving renters (like me) and encouraging people to go out and buy houses they couldn't afford. And there are many, many exceptions and wrinkles—people who needed to refinance, families that had to move into larger houses even if the prices were shooting up, people who were snowed by mortgage brokers pushing an array of inscrutable loans, and so on. But as I say in that linked article, it seemed like everyone around here was a speculator; you were considered an idiot if you weren't eagerly signing up for a $700K mortgage.

And Harold, think of it as a $220K house on a $35K salary if you'd rather. Also, I don't think the scenario you're describing fits the timeline. You're saying that the economy started tanking, causing people to lose their jobs, thus making them unable to meet their payments and causing widespread mortgage defaults—right? But the defaults started first, especially as teaser interest rates reset (this is one of the many areas where I blame the buyers, who apparently convinced themselves that interest rates would stay at historic lows indefinitely). It wasn't until the housing market had already gotten well into its implosion that it started to pull the entire economy down the toilet.

[SteveB]

Imagine you're living in a two-room apartment in Northern California, say, and your wife is expecting a baby. House prices are appreciating at 10-20% a year, so if you don't buy a house NOW, you will NEVER be able to afford a house. So you take the leap at the bottom rung of the ladder as it's getting yanked out of sight, hoping that something - a promotion, a second job, anything - will happen to make it possible for you to stay in the house you just bought. I think there were people who weren't looking to get rich, they just didn't want to rent for the rest of their lives (because for working-class people, home ownership is the only way to accumulate ANY wealth) and they didn't see any alternative.

[John Caruso]

Yeah, definitely...that's why I said "families that had to move into larger houses even if the prices were shooting up." There were similar extenuating circumstances in many cases, and certainly not everyone was just a speculator, though I do think plenty of people got in fully expecting to turn a handsome profit at some point.

Regardless, signing a mortgage is a choice—and "I don't want to rent for the rest of my life," while an understandable sentiment, doesn't excuse signing up for a mortgage you can't afford. I take responsibility for my actions, and I hold others to the same standard. I remember one woman from the film In Debt We Trust who lamented her family's sorry situation, saying she saw no way that she and her husband could get out from under their credit card payments while maintaining the lifestyle they'd come to enjoy. I have zero sympathy for people like that.

(And in the case of the housing crisis it's less than zero, because the irresponsible choices these people made are causing major harm to millions of people who were entirely blameless. Case in point: my parents, who are now watching their retirement annuities being savaged by the economic meltdown. They've lived within their means their entire lives and they did nothing to help inflate this bubble, but they're paying the price now anyway.)

[Harold M]

John, I concede the point, however the initial spike in mortgage defaults was quite modest. And even now, it's not that much higher than the historical mean. The significance of small spikes in the rate of non-performance comes from the damage it does to the bundled securities, and the "insurance" securities. Both of which were structured with intrinsic "force multiplier" toxicity. And even with that toxicity, most of the damage could have been avoided, but the banks refused to renegotiate the souring loans. All but the most cretinous and desperate usually at least try to meet payments; restructuring helps. But the banksters had bundled the debt packages in ways that made restructuring extraordinarily difficult, even if they had wanted to be responsible and look at realistic downsides. All they could see was the opportunity cost of foregoing the money they *might* get in the best of all possible worlds. This was the major component of the accident waiting to happen, and even now over 90% of the existing mortgages are held by people who keep their payments up to date. Hence my treatment of the consumer activity as, essentially, a negligible factor. I take a certain amount of delusion, greed and stupidity as a given and something to be planned for by any responsible industry. Case in point, the credit unions.

That's not to denigrate your points on taking responsibility for ones own actions. Thoughtful agency is always an option. The delusional, greedy and stupid consumers have plenty of opprobrium coming their way. It's appalling that they've managed to drag people like your parents down with them. That's dreadful. I certainly would not be in a forgiving mood in your shoes.

[BrianM]

I cannot edny what John (and Harold) are saying. I cannot justify my own stupidity-overspending can be an addiction that I cannot see how I can escape the trap I SET FOR MYSELF. Mea culpa-just like I don't buy the common meme that drug addiction and alcoholism and a variety of other toxic behaviors are "diseases" that are morally neautral (I'm exagerating the argument somewhat).

I guess where I somewhat disagree with the blog owner (and my friend Jon) is that, as with crack cocaine and pushers, there is culpability out there from the credit offering agencies. There was simply too much easy credit out there. The stupid and the self destructive (like me) got themselves into trouble, but MBNA and the whole realm of credit issuers cannot be seen as totally innocent, either. The entire economy was over credited.

Was this a deliberate policy? Wages have been stagnant for thirty years for 90% of the population. Yet, a consumer based economy needs every-growing consumption. Hence, rather than raising wages, you inflate the supply of consumer credit. That allows more consumption, while also allowing juicy fees and interest and penalties to be collected.

[BrianM]

I might also note that everyone, even virtuous and self-disciplined individuals like your parents, benefited from the bubbles floated over the past twenty years. Without the bubble, our economy would have had to face the music a lot quicker-because the fundamental structural problems in the American economy (current account deficits, trade deficits, government debt loads, etc) would have forced an earlier, albeit maybe softer, reckoning.

[Harold M]

Really, I think one can make too much of the personal virtue aspect of this. A minority of careless, foolish people can't bring collective, systemic punishment down on everyone's head unless the system is structured, from the top down, to make that possible. I can easily see a popular movement against the careless and foolish taking the steam out of a absolutely necessary popular movement against the systemic despoilers.

[BrianM]

Harold: Good points, all. I would add that the economic system NEEDED foolish behavior, by minority or majority, in order to keep sputtering along.

[KDelphi]

I'm so glad you said that, JOhn, Steve and I looked at each other, and, cried in unison---"MADE THIER WAY"?! We did the same thing with "..who quits high school is letting down his entire country" (paraphrase, of course). We thought that it might be the other way around! And , so much more cannon fodder, if we keep schools sucking.

I have tried and tried to think just how the wokring class and poor have totally f*cked up the "free mkt economic system" for the rich, and I just caNT come up with it! I didnt get one of these loans, but, my parents house sold for not shit.(I am not allowed to inherit anything anyway--lose med coverage) My partner's mother's house had to be re-possessed, my sisters' 401k is shit (she was helping me with med bills) and 90% of my credit card debt is med. bills.

I dont see what the hell I have to feel bad about. I havent been to a real movie theater in 10 yrs (I'm not kidding) I havent eaten in a decent restaurant since my family was in town at my mother's funeral. So, when I hear how we're all going to 'have to take a hit"---I just dont know where to cut! Any suggestions as to how i can make up for playing by the rules?

I've checked with an attorney--I cant get my PERS retirement back--the state took it to pay for Medicaid. I paid so much into PERS that I dont have enough to collect social security, unless I go back to work, and, if I can, I am afraid of losing this crappy medicaid (although it covers less and less all the time) I quit high shcool, but, before you say it is all my fault, --I went back, after a nasty divorce at 19. I finished, got a fellowship and finished grad school. I worked the entire time. I worked everyday aince I waws 16 (some restaurant and quickie stores), until I got hit by a rich drunk with a good lawyer. I went back after that, and, then, had to have surgery. The med costs were too high for my employer to keep me on insurance so , here i am.

What should I cut? K Mart clothes? Good Will socks? What?

The middle class, (neo)liberl, we are all responsible well-intentioned blues are not going to cut it, Mr. President.

We need to decide if we want Empire ("restore us to our former glory") or a decent life for our people.

[John Caruso]

I guess where I somewhat disagree with the blog owner (and my friend Jon) is that, as with crack cocaine and pushers, there is culpability out there from the credit offering agencies.

Oh, no no no, we don't disagree at all on that. I'm entirely with you: the system is structured, from the top down, to persuade people to get into debt (via want creation and easy credit), to make that debt as onerous as possible (via the repeal of controls on interest rates), and then to keep them there even if the ship goes under (via bankruptcy "reform" that requires iron responsibility of individuals but rewards incredible, near-criminal irresponsibility by corporations). In fact I meant to put a sentence in my initial comment agreeing with you on deregulation (and disagreeing strongly with your friend)...just as the original posting only went after the banks, not individuals, and specifically mentioned deregulation. And I'm sorry to hear if you're in a bad spot, and hope I wasn't tweaking you too badly.

Harold, you make excellent points all around—do you have some sources? Just curious, not questioning you. Part of my attitude is what I saw, which was what I describe in that first article: everyone was a speculator, and everyone talked as though the bubble could never burst, in fact as though a gigantic stock market bubble hadn't just burst in 2000. And part of it is my own personal knowledge, from myself, friends, and family, that it's possible to live a life without taking on a huge mortgage you can't afford, switching cars every year, buying three flat screen TVs for the bathroom, etc.

Also, just to clarify: my parents are ok thanks to my dad's military retirement. They're just seeing their other retirement investments dry up and blow away (and they don't have the time to wait for them to come back again).

[Harold M]

John, yes I do. Although each cite would take a full week's worth of blogging. My understanding of the situation comes from diligently reading the Financial Times, along with analysis from Michael Hudson and Doug Henwood. The FT tends to bury the good stuff in the back pages, but they have it. I've been pleasantly surprised by the depth of the institutional skepticism they mustered. It's often hard to believe their sister publication is The Economist, which is still huffing glue in a major way.

Your experience resonates, both personally and as part of the whole picture. Most of the people I know hew to the same ethic. It's a good one; evocative of modest but satisfying accomplishment.

Thanks for letting me know your folks will scrape by.

[BrianM]

Sorry John C....I was misrepresenting your position, which is sorta the same thing.

[Wintchell S.]

There's something I'd like to add to the discussion, and that is the elimination of rental housing and many markets. It's mean spritied to say that greed and stupidity are the reasons why so many bought homes. Many people in recent years, were pushed, even forced, into buying - perhaps what you might call "unwisely"- but entirely due to a complete lack of affordable rentals.
My brother's apt bldg was converted into condos in 2006. Thirty units of 300-400 sq ft studio and 600-700 sq ft one bedroom apts suddenly sold like so much candy to realtors and speculators at an average of $180-200,000 a pop (in a middle market, not a prime on, like N.Y. or California).
Some of the realtors were overheard crowing with glee over this juicy opportunity- they were buying two and three of these "condo homes" at a time.
Pretty soon, with enough of these condo "conversions", rental units became increasingly rare in the core of the city. People began moving to the edges of town where housing was still affordable (for purchase or rent), disrupting well-established, traditional, decades old communities.
In particular- no surprise here- this hit hard in African American neighborhoods.
If you wanted a place large enough for two, or perhaps a family (even a small family) - buying a condo "home" was about the only way to find housing at all.
Yes, greed was a factor, but not greed on the part of those who were (and are) simply searching for a place to live. Greedy realtors, greedy housing speculators and greedy banks.

[John Caruso]

You're right that some people were pushed into buying by condo conversions and a lack of rental stock (and I'm sorry to hear your brother got squeezed by that), but I think you're overestimating how widespread that was or how big of an effect it had in pushing people to buy houses they couldn't afford. In fact it worked just the opposite here: the housing bubble caused a big downturn in the rental market in San Francisco, which didn't recover until the bubble started to burst and all those people could no longer get easy credit (and so they turned to renting instead of buying).

There are definitely examples of extenuating circumstances, and I do have sympathy for people who had little choice but to enter the housing market at the worst possible time. But bubbles can't happen without buyers, and many people did have a choice...and I hold them responsible for the choices they made.