Monthly Archives: December 2007

The Mortgage Bailout — Isn’t

Economics, Government Regulation, Monetary Issues, Politics, Taxation

The plan coming out of the administration and treasury to prop up the mortgage industry has caused quite an uproar. In particular, there’s been a big debate even within the ranks of contributors to this blog about exactly how smart of an idea this is.

The problem, however, is that we were largely arguing in a vacuum. The particulars of the plan were largely unknown (or not fully understood), even last night as I was writing my own post on the subject. Thus, in a vacuum people are throwing out terms like “bail-out”, and voluntary vs. forced renegotiation (hereafter I will use the term “modify”, as that appears to be the agreed-upon industry term). In general, we were arguing the rhetorical point about government intervention in the market, without really having a handle on what the government was proposing.

Enter a post by Tanta over at Calculated Risk. First, before you continue reading this post, click on the link and read it. Then come back.

As far as I can understand, it boils down to a few key points:

1. Due to the regulatory/contractual structure, lenders did not know whether they could modify loans without violating the contract of the debt instruments they’ve sold to investors.
2. Investor contracts (Pool & Servicing Agreements, or PSA’s) are not uniform, but most are designed such that loans can only be modified under certain circumstances (when in danger of foreclosure). This is due to the fact that the investments are tax-advantaged, and there are very specific rules within the tax code regarding the regulation of such instruments.
3. Lenders and investors wanted a way to modify loans (instead of foreclosing), but they weren’t sure if they could do so, as the typical language in a PSA says “you can follow agreed-upon practices that don’t violate REMIC standards or jeopardize the investment’s Q-status.”
4. The government decided to clarify the meaning of their tax regs and say that such modifications would not violate said standards.

That’s basically it. It looks like lenders and investors were very confused about whether the actions they wanted to take (modifying loans to avoid foreclosures) could legally be done without violating their current contracts. When they’re confused, they often simply don’t act. The government came out and said “yes, what you want to do is legal”, and now the lenders feel more comfortable going forward.

This is why there are three classes of borrowers, and that borrowers capable of refinancing are not eligible for the rate freeze. Those who are capable of refinancing their loan are not considered “in danger of foreclosure”, so they cannot be legally modified within the bounds of the PSA. Their only hope is refinancing. For those with low FICO scores, or other conditions that make refinancing impossible, but are in danger of foreclosure, this gives lenders the ability to modify their loans without fear of legal action under the PSA.

But this isn’t really all about helping borrowers, it’s about letting lenders find a way out of this mess without going belly-up. Which, if you think about it, is entirely consistent with a Bush administration proposal: help the corporations, whether it improves the economy, the housing market, or not. It appears this is a lot more complicated than what fits into a 2-minute sound bite on MSNBC. And like most government actions, between a thin veneer of “public interest”, it’s really about helping out the lenders and investors, not the borrowers.

Of course, the Administration is selling this to the public as if it’s all about helping borrowers. They’re politicians, and they want the public to believe they’re “doing something”. The media isn’t interested in in-depth analysis of the situation, and your average newspaper reader isn’t very interested in getting knee-deep in PSA, REMICs, Q-status, and the like. So only out in the blogosphere does anyone have an incentive to actually call this a non-action, which is what it is.

This isn’t a giveaway to borrowers.
This isn’t a violation of investors’ contracts with lenders.
This isn’t costing the taxpayer money.

This isn’t a bailout.

Brad Warbiany
https://thelibertypapers.org/

House Passes SAFE Act — Do You Feel Safer?

Crime and Punishment, Government Regulation, Individual Rights, Legal, Politics, Privacy, Technology, The Surveillance State

Have a small business offering wifi access? Have a home wireless connection that you’ve not secured? Well, consider yourself “deputized”. You may not know how to even track your who is using your internet connection, but you may soon be legally required to do so:

What’s SAFE? It stands for the Securing Adolescents From Exploitation-Online Act, and its reach could be unprecedented. Namely, it holds that anyone offering any public electronic communications service (including an open Wi-Fi connection or internet kiosk) must create a sort of dossier on anyone they suspect might be viewing child pornography over their network and submit it to the government. (Presumably the culprit would have to be caught in the act; the bill doesn’t really say.) The service provider will also have to maintain an archive of all the suspect’s files for use as evidence.

It sounds bad at first, but the definition of child pornography in this case is especially surprising. Per Cnet’s Declan McCullagh, the definition of such images includes those featuring fully-clothed children in “lascivious” poses and even drawings of such. The latter might include the popular form of “hentai anime”, (which sites like cartoon porno xxx have an extensive catalog of) which are drawn in a way where it is hard to tell who is of a particular age.

Failure to comply with the law could result in a first-offense fine of $150,000 and $300,000 after that. That means every library, coffee shop, and even private homes that offer open wireless access could face crushing penalties if they don’t eavesdrop on their clientèle. In other words: The government wants you to do its dirty work and play Big Brother on its behalf. Creepy.

Yep. You’d better know what people are using your internet connection for, or you might be in trouble. Better brush up on your hentai knowledge skills in case your neighbour steals your wifi. Is that customer in your cafe on “Design Your Custom Doll” adult site for evil sinister child attacking purposes? Better look over his shoulders and- yes, that is an adult woman design you have just seen, time for a sit-down. But you can’t! The government doesn’t have the time nor resources to catch criminals on their own, so you need to do it for them!

Personally, while this might get a lot of airtime, I wouldn’t worry too much about it. A government too incompetent to catch criminals on their own will most likely be too incompetent to catch you if you don’t understand that someone is using your internet connection for nefarious purposes. Or even look into someone you did report because you thought was looking at child pornography. I’d say that I don’t care and would continue to offer free wi-fi, but I’ve kept my own connection secure just as general principle since I’ve had it, so it doesn’t affect me much. That and the fact that I won’t be viewing material from the likes of toonsex.xxx and similar websites that could potentially breach what the government might see as offending pornography.

Oh, but one little bit takes the cake on this one:

Additionally scary: This legislation never received a committee vote or public hearing and was never made available for public review. Way to sneak one past the goalie, Congress!

I don’t know what’s more sad… The fact that Congress often passes bills like this (without review), or the fact that the original author didn’t quite realize that Congress often passes bills like this. After all, they want to make sure you don’t get any crazy animehentaivideos xxx hentai through your connection to the series of tubes.

Hat Tip: Doug
» Read more

Brad Warbiany
https://thelibertypapers.org/

Subprime Restructure Resistance – How Much Is Punishment-Driven?

Economics, Government Regulation, Politics, Theory and Ideas

It’s clear to everyone with reasoning ability that our subprime mess is, well, a colossal mess. We’re talking about a credit bubble that’s enormous, and the fallout of a big-time POP will put our nation into the question of major recession vs. hyper-inflation. The process of buying and selling a house has now become rather complicated, though you can click here to see ways in which you can go about selling your home in a smart, efficient manner, despite the subprime crisis. In some circumstances, some homeowners are just thinking about how to “Sell Your House Fast” so they can receive a cash offer at a quicker rate than having to go through the hassle of the housing market. That’s appealing for many homeowners. Selling a house can be a long and tiring process for homeowners. They have to be available for house viewings and also have to ensure their home is constantly clean and tidy. The process can also take months, meaning that the homeowner can’t look for another house until their home is sold. This is why it’s become so popular to sell your house in Lancaster fast for cash, or wherever else your home may be located. It makes the process so much easier, whilst also giving homeowners the opportunity to snap up their next dream house straight away.

Investors and lenders are already feeling the effects, as you see major mortgage companies writing off billions of dollars of losses. This is not good for homeowners, as many are facing foreclosure as their payments reset to rates that they can no longer afford. Many citizens are having to use a Short Term Fresh Loan to manage payments. These short term loans are the only reason some Americans are staying afloat. And it’s not good for the economy, because a major credit crunch will shut down the engine that allows us to escape the effects of this downturn (albeit only temporarily, but that’s a factor of our screwed-up monetary system in general).

I personally believe that while this is a bad situation, there are things we can do to minimize the downturn. One of those things is for lenders to take a pro-active approach to people who took on bad loans and are facing foreclosure, in order to find a way to restructure the loan to terms that are acceptable. This is obviously a good thing for the borrower, as they can meet their current payments and a restructuring allows them to keep their home in their possession and keep their credit rating intact. This is also a good thing for the lenders, because in a stagnant or downward housing market, foreclosures are a losing-money proposition for the lender. Foreclosing on a house, holding the property for several months or taking a huge loss on the sale, and then also forgoing the future interest on the loan is a pretty big downside for them. For investors, a restructure is a bad thing, but potentially a less-bad thing than the lenders failing and their investments becoming worthless.

Yet there has been a lot of resistance to such an idea. And while I hate to say it, that restructuring appears to have some desire for punishment, rather than a desire to help people work things out, which I find troubling. A few examples:

Second, in part because of the housing bubble and in part because of simple bad decision making, people were buying houses they really couldn’t afford and entering into loan transactions that were not in their best interest.

Two parties are involved here and both deserve what they have coming to them.

essentially, the government is trying to ruin everybody’s credit for the benefit of a few morons. Great!!!

these Bush socialists want to rewrite real estate contracts, effectively reward people for being greedy idiots, punishing those who chose higher interest, fixed loans.

so the politicians can appear to be “sensitive” to poor people who are apparently too stupid to read the documentation when buying their house or can’t handle their own finances.

Now, all of those quotes came from one post and one comment thread. Taken individually, none are really all that noteworthy. But taken together, there’s an underlying thread of anger and scorn there that is rather troubling.

Don’t get me wrong, I’m very worried about the aspect that government brings into this mess. I think the term “bailout” is still premature, but I worry that if lenders don’t follow the government’s “suggestion” here, that they’ll quickly move to a more active role. There are definite problems with the government getting involved in this mess.

However, the negative reaction to a restructuring of loans is something that I’ve noticed for at least the last month or two, even before the government aspect came into the picture. There seems to be an underlying punitive aspect, as if these borrowers and lenders should simply have to feel pain due to their decisions, even if there are reasonable ways to avoid the pain.

In this deal, there were a lot of culpable parties. Borrowers were buying houses that were going up in value, so they had some (perhaps bad) belief that they could sell and get out if things got bad. They were buying the loans from brokers, many of whom were getting paid more to funnel borrowers into these “creative” loans, and who also were selling those same loans on the back end, so they had no incentive to make sure the borrowers were creditworthy. The lenders did relax standards for loans they were buying, but at the same time they were simply slicing-and-dicing those loans into CDO’s and SIV’s and selling them on a secondary market, spreading the risk out to people who were willing to take it. And this was all underwritten by loose monetary policy borne of a government that was searching for anything that might take it out of the post-9/11 slump.

Lenders and borrowers have a potential way out of this mess. And if they are able to stabilize the situation long enough to turn a sharp housing crisis into a long housing stagnation, the wider economy might at least avoid some major unpleasant shocks. But it seems like some individuals are SO focused on the punitive aspect that they would rather watch the whole mess come crashing down than support individual lenders and borrowers do what they can to avoid it.

Again, I’m somewhat conflicted on this issue. Since selling my house for a whopping three-figure profit earlier this year in order to move to California, I’m stuck in a tiny apartment with a wife and baby, hoping that there is a major housing crash so I can afford to buy a condo. I want there to be enough pain that prices come to a point that allow me to get into the market, which is something I cannot do right now. To do this, we need a serious correction, not just a protracted stagnation.

Yet I still don’t understand the desire that some people have to watch people get thrown out of their homes and their credit ruined. I understand if they made bad decisions so egregious that there is no recourse, but these are mostly people who are making their current payments and just looking for a way to avoid watching their whole world come crashing down. And the lenders are absolutely hoping that they don’t have to foreclose on wide swaths of property, because they know that they’ll lose their shirts in that sort of market.

It’s not a good situation. But why do so many people want to see punishment, rather than see voluntary agreements between borrowers and lenders that might allow lenders to stay afloat and families remain in their homes? I realize that we are conservatives, and we don’t want to see people insulated from the consequences of their actions by government action, but so much of the reaction that I see seems to be a desire for punishment, rather than understanding. America is a land that values fairness, but it is also a land that values compassion. Why have we swung so far away in this case?

Brad Warbiany
https://thelibertypapers.org/

Destroying The Evidence

War on Terror

Today’s New York Times reports that the Central Intelligence Agency destroyed videotapes showing the use of harsh interrogation techniques on suspected al Qaeda members:

WASHINGTON, Dec. 6 — The Central Intelligence Agency in 2005 destroyed at least two videotapes documenting the interrogation of two Al Qaeda operatives in the agency’s custody, a step it took in the midst of Congressional and legal scrutiny about the C.I.A’s secret detention program, according to current and former government officials.

The videotapes showed agency operatives in 2002 subjecting terror suspects — including Abu Zubaydah, the first detainee in C.I.A. custody — to severe interrogation techniques. They were destroyed in part because officers were concerned that tapes documenting controversial interrogation methods could expose agency officials to greater risk of legal jeopardy, several officials said.

The C.I.A. said today that the decision to destroy the tapes had been made “within the C.I.A. itself,” and they were destroyed to protect the safety of undercover officers and because they no longer had intelligence value. The agency was headed at the time by Porter J. Goss. Through a spokeswoman, Mr. Goss declined this afternoon to comment on the destruction of the tapes.

Moreover, the tapes may have been withheld from the 9/11 Commission and a Federal Judge:

The recordings were not provided to a federal court hearing the case of the terror suspect Zacarias Moussaoui or to the Sept. 11 commission, which had made formal requests to the C.I.A. for transcripts and any other documentary evidence taken from interrogations of agency prisoners.

C.I.A. lawyers told federal prosecutors in 2003 and 2005, who relayed the information to a federal court in the Moussaoui case, that the C.I.A. did not possess recordings of interrogations sought by the judge in the case. It was unclear whether the judge had explicitly sought the videotape depicting the interrogation of Mr. Zubaydah.

Mr. Moussaoui’s lawyers had hoped that records of the interrogations might provide exculpatory evidence for Mr. Moussaoui — showing that the Al Qaeda detainees did not know Mr. Moussaoui and clearing him of involvement in the Sept. 11, 2001, plot.

In other words, the CIA broke the law, lied about it, hid the evidence, and then destroyed it.

Welcome to George Bush’s America.

Doug Mataconis
http://www.belowthebeltway.com

Mike Huckabee: God’s Preferred Candidate

Dumbasses and Authoritarians, Election '08, Huckabee Watch, Politics

Mike Huckabee revealed that he is the preferred candidate of Jesus Christ in a QandA session at Liberty University on December 4, 2007.

h/t: Doug’s place.

Also added a new category, Huckabee Watch, to follow the most dangerous man running for president this year.

Kevin Boyd
I’m one of the original co-founders of The Liberty Papers all the way back in 2005. Since then, I wound up doing this blogging thing professionally. Now I’m running the site now. You can find my other work at The Hayride.com and Rare. You can also find me over at the R Street Institute.
https://thelibertypapers.org/2005/11/22/a-bit-about-kevin/
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