Monday, July 12, 2010

Default Is In Our Stars

Assuming they're interested in facts, which, plainly, they're not, the RWS™, teabaggers, and pretty much all Congressional Republicans who've been claiming that the mortgage meltdown is the fault of the poor, and of the CRA, this study in the NYT should be of interest:
Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.
So much for a favorite shibboleth of the sh*tful. It's of a piece with their more recent claim, as they continue to vote for scuttling the recovery, that unemployment benefits discourage work. (The benefits, however, outweigh that effect, which is minimal.) I'd expect there's a bit of truth in both claims: people were sold mortgages they couldn't afford, and there are some for whom three hundred bucks a week is enough to feed their families and keep roofs (such as they might be) over their heads. But it's the easy and untrue extrapolations that become gospel among the preachy and the preached-to.

We've already heard that loans made under the CRA were more likely to be repaid, and less likely to have been bundled into leaky securities than other loans. Now, we find that the wealthy are more at default than the poor.

Once again, it seems clear: if there are arguments to be made -- should we help the needy or not, do the times require extraordinary measures or not, are short-term deficits necessary to economic recovery and more or less harmful than balancing budgets at this time -- they ought to be argued on the basis of fact, and not as empty talking points aimed at rallying the weak of mind.

You'd think so, anyway. Wouldn't you?


Frank Drackman said...

If your really rich you shouldn't have a Mortgage.

Anonymous said...

Dr. Sid,
I think the article you based your post on overlooked a few salient points:

1. "Rich" people are strategically defaulting NOW that the economy isn't going to recover for a few more years. Who could blame them really? If the banks get a taxpayer bailout, then why shouldn't they (as the largest group of taxpayers) also be allowed to bail on their poor investments? The article provides little evidence that the "rich" were the CATALYST for the "meltdown".

Mr. Chamillionare, from page 2 of your article says it best:
The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006. “I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”

2. Due to sheer volume, the small number of people defaulting on million dollar+ homes has much less effect on the economy when compared to the larger numbers of those defaulting on more affordable homes. Again, the point is moot as they were not the catalyst for the subprime "meltdown", but more a reaction to it.


p.s. Did you know that bank mergers or expansions can be delayed if there is a complaint from a "community group" that they are not in compliance with the CRA. Do you realize how much power that gives community groups to shape a banks lending patterns?

You might be interested in this article:

The banks making bad loans has some parallel to the BP situation; Due to political pressures, neither company was allowed to do business the traditional (proven successful) way. Instead they were forced to try to make profitable loans to high risk clients and dig for oil a mile under the sea. What could go wrong?

Sid Schwab said...

PT: I didn't claim that rich defaults had an effect on the meltdown. I find it interesting, is all, especially in view of the claims that the poor and the CRA (which you seem to accept as well) were the reason, and also in view of the latest round of blame being placed on the unemployed as the only thing wrong, and the one class of people that deserve no help. Extend tax cuts for the rich, end unemployment bennies for the poor.

I'd argue with your implication, also, that banks were "not allowed" to do traditional lending, or that BP had no choice in how it chose to drill, to follow rules or not, to do proper diligence in monitoring the cement, the safety equipment, etc. Other companies managed to do so.

You're taking up Rush's blaming of BP on Greenpeace. It's a clever argument, I admit, although I don't recall environmentalists demanding that oil should be drilled offshore. And I don't see oil companies having problems making billions in profits, no matter where they drill; I'm guessing they would do so even if they'd been made to follow the rules.

Whether the CRA has had other negative impact on banks is a separate issue, about which I don't claim knowledge. However, since it's evidently true that loans made under CRA haven't been any worse for banks or the economy than other loans, I don't know why making banks comply with the law would be a problem. Other than that nasty idea, in general, of regulating businesses for the safety or benefit of consumers or the economy.

So whereas you're right that the recent defaults of rich people might not be having much effect (although the more housing the banks own, the more pressure there is on banks and the housing market and the construction industry), your other implications are, based on what's known, false.

Sid Schwab said...

P.S., PT: Here's an article that sheds some light on the drilling issue, vis a vis political pressures. I'd say it supports my opinion more than yours, but it's more even-handed than me.

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