Tag Archives: Naked Capitalism

Wikileaks 2.0

http://bankofamericasuck.com/

Adrian Chen at Gawker:

A member of the activist collective Anonymous is claiming to be have emails and documents which prove “fraud” was committed by Bank of America employees, and the group says it’ll release them on Monday. The member, who goes by the Twitter handle OperationLeakS, has already posted an internal email from the formerly Bank of America-owned Balboa Insurance Company

The email is between Balboa Insurance vice president Peggy Johnson and other Balboa employees. (Click right to enlarge.) As far as we can tell, it doesn’t show anything suspicious, but was posted by OperationLeaks as a teaser. He also posted emails he claims are from the disgruntled employee who sent him the material. In one, the employee says he can “send you a copy of the certified letter sent to me by an AVP of BofA’s [HR department] telling me I am banned from stepping foot on BofA property or contacting their employee ever again.”

OperationLeaks, which runs the anti-Bank of America site BankofAmericasuck.com, says the employee contacted the group to blow the whistle on Bank of America’s shady business practices. “I seen some of the emails… I can tell you Grade A Fraud in its purest form…” read one tweet. “He Just told me he have GMAC emails showing BoA order to mix loan numbers to not match it’s Documents.. to foreclose on Americans.. Shame.”

An Anonymous insider told us he believes the leak is real. “From what I know and have been told, it’s legit,” he said. “Should be a round of emails, then some files, possible some more emails to follow that.” The documents should be released Monday on Anonleaks.ch, the same site where Anonymous posted thousands of internal emails from hacked security company HBGary last month. That leak exposed a legally-questionable plot to attack Wikileaks and ultimately led to the resignation of HBGary CEO Aaron Barr.

Katya Wachtel at Clusterstock:

Anonymous said late Sunday evening, however, “this is part 1 of the Emails.” So perhaps more incriminating correspondence is to come. And to be honest, these messages could be incredibly damaging, but we’re not mortgage specialists and don’t know if this is or isn’t common in the field. The beauty is, you can see and decide for yourself at bankofamericasuck.com.

But for those who want a simple explanation, here’s a summary of the content.

The Source

The ex-Balboa employee tells Anonymous that what he/she sends will be enough to,

crack [BofA’s] armor, and put a bad light on a $700 mil cash deal they need to pay back the government while ruining their already strained relationship with GMAC, one of their largest clients. Trust me… it’ll piss them off plenty.

The source then sends over a paystub, an unemployment form, a letter from HR upon dismissal and his/her last paystub and an ID badge.

He/she also describes his/herself:

My name is (Anonymous). For the last 7 years, I worked in the Insurance/Mortgage industry for a company called Balboa Insurance. Many of you do not know who Balboa Insurance Group is, but if you’ve ever had a loan for an automobile, farm equipment, mobile home, or residential or commercial property, we knew you. In fact, we probably charged you money…a lot of money…for insurance you didn’t even need.

Balboa Insurance Group, and it’s largest competitor, the market leader Assurant, is in the business of insurance tracking and Force Placed Insurance…  What this means is that when you sign your name on the dotted line for your loan, the lienholder has certain insurance requirements that must be met for the life of the lien. Your lender (including, amongst others, GMAC… IndyMac… HSBC… Wells Fargo/Wachovia… Bank of America) then outsources the tracking of your loan with them to a company like Balboa Insurance.

The Emails

Next comes the emails that are supposed to be so damaging. The set of emails just released shows conversational exchanges between Balboa employees.

The following codes pertain to the emails, so use as reference:

  1. SOR = System of Record
  2. Rembrandt/Tracksource = Insurance tracking systems
  3. DTN = Document Tracking Number. A number assigned to all incoming/outgoing documents (letters, insurance documents, etc)

The first email asks for a group of GMAC DTN’s to have their “images removed from Tracksource/Rembrandt.” The relevant DTNs are included in the email — there’s between 50-100 of them.

In reply, a Balboa employee says that the DTN’s cannot be removed from the Rembrandt, but that the loan numbers can be removed so “the documents will not show as matched to those loans.” But she adds that she needs upper management approval before she moves forward, since it’s an unusual request.

Then it gets approved. And then, one of the Balboa employees voices their concern. He says,

“I’m just a little concerned about the impact this has on the department and the company. Why are we removing all record of this error? We have told Denise Cahen, and there is always going to be the paper trail when one of these sent documents come back. this to me seems to be a huge red flag for the auditors… when the auditor sees the erroneous letter but no SOR trail or scanned doc on the corrected letter… What am I missing? This just doesn’t seem right to me.

We suspect this is the type of email that Anonymous believes shows BofA fraud:

leak one

Image: Anonymous

Click here to see why these emails prove nothing interesting, and to see what what Bank of America says about the emails >

Chris V. Nicholson at Dealbook at NYT:

A Bank of America spokesman told Reuters on Sunday that the documents had been stolen by a former Balboa employee, and were not tied to foreclosures. “We are confident that his extravagant assertions are untrue,” the spokesman said.

The e-mails dating from November 2010 concern correspondence among Balboa employees in which they discuss taking steps to alter the record about certain documents “that went out in error.” The documents were related to loans by GMAC, a Bank of America client, according to the e-mails.

“The following GMAC DTN’s need to have the images removed from Tracksource/Rembrandt,” an operations team manager at Balboa wrote. DTN refers to document tracking number, and Tracksource/Rembrandt is an insurance tracking system.

The response he receives: “I have spoken to my developer and she stated that we cannot remove the DTNs from Rembrandt, but she can remove the loan numbers, so the documents will not show as matched to those loans.”

According to the e-mails, approval was given to remove the loan numbers from the documents.

A member of Anonymous told DealBook on Monday that the purpose of his Web site was to bring attention to the wrongdoing of banks. “The way the system is, it’s made to cheat the average person,” he said.

He had set up a Web site to post bank data that WikiLeaks has said it would release, and was subsequently contacted this month by the former Balboa employee. It has been speculated that the documents, which have yet to be released, would focus on Bank of America. The spokesman for Anonymous said he had no direct ties to WikiLeaks, which is run by Julian Assange.

Nitasha Tiku at New York Magazine:

WikiLeaks’ founder, Julian Assange, has threatened to leak damning documents on Bank of America since 2009. And Anonymous has backed WikiLeaks’ mission as far as the free flow of information. But these e-mails date from November 2010. Plus, they don’t exactly amount to a smoking gun. Whether or not the e-mails prove real, it’s clear Bank of America should have expanded its negative-domain-name shopping spree beyond BrianMoynihanSucks.com.

Naked Capitalism:

The charge made in this Anonymous release (via BankofAmericaSuck) is that Bank of America, through its wholly-owned subsidiary Balboa Insurance and the help of cooperating servicers, engaged in a mortgage borrower abuse called “force placed insurance”. This is absolutely 100% not kosher. Famed subprime servicer miscreant Fairbanks in 2003 signed a consent decree with the FTC and HUD over abuses that included forced placed insurance. The industry is well aware that this sort of thing is not permissible. (Note Balboa is due to be sold to QBE of Australia; I see that the definitive agreement was entered into on February 3 but do not see a press release saying that the sale has closed)

While the focus of ire may be Bank of America, let me stress that this sort of insurance really amounts to a scheme to fatten servicer margins. If this leak is accurate, the servicers at a minimum cooperated. If they got kickbacks, um, commissions, they are culpable and thus liable.

As we have stated repeatedly, servicers lose tons of money on portfolios with a high level of delinquencies and defaults. The example of Fairbanks, a standalone servicer who subprime portfolio got in trouble in 2002, is that servicers who are losing money start abusing customers and investors to restore profits. Fairbanks charged customers for force placed insurance and as part of its consent decree, paid large fines and fired its CEO (who was also fined).

Regardless, this release lends credence a notion too obvious to borrowers yet the banks and its co-conspirators, meaning the regulators, have long denied, that mortgage servicing and foreclosures are rife with abuses and criminality. Here’s some background courtesy Barry Ritholtz:

When a homeowner fails to keep up their insurance premiums on a mortgaged residence, their loan servicer has the option/obligation to step in to buy a comparable insurance policy on the loan holder’s behalf, to ensure the mortgaged property remains fully insured….

Consider one case found by [American Banker’s Jeff] Horwitz. A homeowner’s $4,000 insurance policy, was paid by the loan servicer, Everbank via escrow. But Everbank purposely let that insurance policy lapse, and then replaced it with a different policy – one that cost more than $33,000. To add insult to injury, the insurer, a subsidiary of Assurant, paid Everbank a $7,100 kickback for giving it such a lucrative policy — and, writes Horwitz, “left the door open to further compensation” down the road.

That $33,000 policy — including the $7,100 kickback – is an enormous amount of money for any loan servicer to make on a single property. The average loan servicer makes just $51 per loan per year.

Here’s where things get interesting: That $33,000 insurance premium is ultimately paid by the investors who bought the loan.

And the worst of this is….the insurance is often reinsured by the bank/servicer, which basically means the insurance is completely phony. The servicer will never put in a claim to trigger payment. As Felix Salmon noted,

This is doubly evil: it not only means that investors are paying far too much money for the insurance, but it also means that, as both the servicer and the ultimate insurer of the property, JPMorgan Chase has every incentive not to pursue claims on the houses it services. Investors, of course, would love to recoup any losses from the insurer, but they can’t bring such a claim — only the servicer can do that.

Note there are variants of this scheme where insurance is charged to the borrower (I’ve been told of insurance being foisted on borrowers that amounts to unconsented-to default insurance, again with the bank as insurer; this has been anecdotal with insufficient documentation, but I’ve heard enough independent accounts to make me pretty certain it was real)

David Dayen at Firedoglake:

Just because something has a lot of anecdotal evidence behind it doesn’t necessarily mean the specific case is true. But the forced-place insurance scam has been part of other servicer lawsuits, so it definitely exists. Whether this set of emails shows that taking place is another matter. Apparently this is just the first Anonymous email dump, so there should be more on the way

Derek Thompson at The Atlantic

Parmy Olson at Forbes:

Yet however inconclusive the e-mails may be, the leak may have wider implications as Anonymous gradually proves itself a source of comeuppance for disgruntled employees with damning information about a company or institution. Once the domain of WikiLeaks, the arrest of key whistleblower Bradley Manning suggested the site founded by fellow incarcerate Julian Assange could not always protect its sources. “A lot depends on the impact of this week,” says Gabriella Coleman, a professor at NYU who is researching Anonymous, who added that “Anonymous could go in that [WikiLeaks] direction.”

Anonymous is not an institution like WikiLeaks. It is global, has no leader, no clear hierarchy and no identifiable spokespeople save for pseudo-representatives like Gregg Housh (administrator of whyweprotest.net) and Barrett Brown.

It has some ideals: Anonymous tends to defend free speach and fight internet censorship, as with the DDoS-ing of the web sites of MasterCard, Visa and PayPal after they nixed funding services to WikiLeaks, and the DDoS-ing of Tunisian government Web sites. It is also great at spectacle. The group’s hacking of software security firm HBGary Federal not only gained oodles of press attention, it inadvertently revealed the firm had been proposing a dirty tricks campaign with others against WikiLeaks to Bank of America’s lawyers.

That hack led, rather organically, to the establishment of AnonLeaks.ru, a Web site where the Anonymous hackers posted tens of thousands of HBGary e-mails in a handy web viewer. While it took just five supporters to hack HBGary, hundreds more poured through the e-mails to identify incriminating evidence, leading to more press reports on the incident.

Such is the nature of Anonymous–global, fluid, intelligent, impossible to pin down–that it is could become an increasingly popular go-to for people wishing to vent damaging information about an institution with questionable practices.

The collective already receives dozens of requests each month from the public to attack all manner of unsavoury subjects, from personal targets to the government of Libya, from Westboro Baptist Church to Facebook. It rarely responds to them–as one Anonymous member recently told me, “we’re not hit men.”

Yet for all its facets as both hot-tempered cyber vigilantes and enlighteners of truth, Anonymous is becoming increasingly approachable, as the latest emails between OperationLeakS and the former BoA employee show. Assuming this particular employee doesn’t end up languishing in jail like Manning, more people may now be inclined to follow suit.

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Filed under Economics, New Media, Technology, The Crisis

Disaster In Japan

Andrew Sullivan with a round-up of live blogs

Naked Capitalism:

When a smaller earthquake struck near Tokyo a couple of days ago, I wondered if worse was on the way soon.

Japan has been overdue for a major earthquake, given their historical frequency. Perversely, there was much more worry about the impact of a major quake on Japan when it was an economic force to be reckoned with (perhaps a subconscious wish to cut the seemingly unbeatable Japanese down to size?). While the horrific death count that resulted from the last great quake in 1923, led the Japanese to impose vastly tougher building codes and continue to improve upon earthquake-related technology, events like this too often have a nasty way of defeating careful planning. But this tremblor, which registered a formidable magnitude 8.8, was off the northern coast, but still has produced serious disruptions in Tokyo. There are no good reports of the damage yet.

Choire Sicha at The Awl:

Livestream news from Hawaii seem to show non-devastating waves and pullbacks as the tsunami spreads out from its source in Japan, but at “fairly significant numbers,” according to the islands’ tsunami guy. Japan is still reporting a shockingly low death toll from such a significant event; but that toll is expected to rise. In Hawaii, people seem nervous but assured: “I’ve cut my feet on this reef a few times but nothing like this,” said the KHNL newscaster a few minutes ago, looking at the exposed Diamondhead reef, which is now getting some water again. So far they’ve seen surge of about six feet; it’s now expected to top out at 8 or 9 feet. In the 1946 tsunami, waves lasted all day; this is not expected to be as severe, but you’ll see “odd behavior” all day around Hawaii. After 7 a.m., foot-size waves are expected to reach California.

Michelle Malkin:

Keep the people of Japan in your prayers. The earthquake and tsunami that hit the northern part of the country has caused devastating loss of life and destruction. Readers in Hawaii e-mail that they have prepared for coastal flooding as well. Be safe, friends.

Ed Morrissey:

I lived most of my life in Southern California, where natives take a blasé attitude towards most quakes, but a few of them are memorable.  My first day running an alarm center in Southern California was the day of the Northridge quake seventeen years ago, which only hit 6.7 on the Richter scale and killed 33 people, destroyed a freeway overpass, and did major damage.  The Richter scale is logarithmic, which means that an 8.8 quake released more than 1000 times the energy of a 6.7.

Jack Spencer at Heritage:

Reports coming from Japan say the quake caused millions of people to evacuate buildings, and the government ordered people near several of the country’s nuclear power plants to leave. Concerns about a radiation leak at the Fukushima Dai-Ichi No. 1 reactor, one of Japan’s 11 nuclear reactors, led to the precautionary evacuation. The biggest concern is that the electricity shortage at the plant is making it difficult for crews to operate the plant’s reactor cooling system quickly.

It is important to remember that the evacuation efforts are cautionary measures rather than indicative of any certain danger posed by the nuclear reactors. Japan’s nuclear power plants, like our own, are built to withstand earthquakes. Plants are engineered to shut down the moment an earthquake hits. Beyond that, each nuclear power plant is fitted with numerous and layered safety mechanisms to ensure the integrity of the facility.

Indeed, even if all of those systems fail, which has not been the case in Japan based on current information, the physics of light water reactors (the type operated in both Japan and the U.S.) make them inherently safe. The same water used to cool the reactor is also necessary to sustain the nuclear reaction. Should the ability to cool the reactor be lost because of an inability to pump coolant to the core, as is the case with the one Japanese reactor, the nuclear reaction will cease. However, it is much too early to even assume that has happened.

Digby:

I was watching the live coverage of the tsunami in Japan last night and could not believe what I was seeing. It was something out of a movie — a movie that I would have thought was somewhat ridiculous until I saw this surge from the birds eye view. Unbelievable.

I’m sitting here now, six blocks from the beach in California, waiting for the wave to hit the west coast. Luckily it doesn’t appear to be dangerous to us at this point.

The good news is that if the Republicans have their way, when one of these things does hit us in this earthquake zone, we won’t have warning:

Thursday night’s massive earthquake in Japan and the resulting tsunami warnings that have alarmed U.S. coasts, seem likely to ignite a debate over a previously little-discussed subsection of the spending bills currently being debated in Congress.

Tucked into the House Republican continuing resolution are provisions cutting the National Oceanic and Atmospheric Administration, including the National Weather Service, as well as humanitarian and foreign aid.

Presented as part of a larger deficit reduction package, each cut could be pitched as tough-choice, belt-tightening on behalf of the GOP. But advocates for protecting those funds pointed to the crisis in Japan as evidence that without the money, disaster preparedness and relief would suffer.

“These are very closely related,” National Weather Service Employees Organization President Dan Sobien told The Huffington Post with respect to the budget cuts and the tsunami. “The National Weather Service has the responsibility of warning about tsunami’s also. It is true that there is no plan to not fund the tsunami buoys. Everyone knows you just can’t do that. Still if those [House] cuts go through there will be furloughs at both of the tsunami warning centers that protect the whole country and, in fact, the whole world.”

The House full-year continuing resolution, which has not passed the Senate, would indeed make steep cuts to several programs and functions that would serve in a response to natural disasters (not just tsunamis) home and abroad. According to Sobien, the bill cuts $126 million from the budget of the NWS. Since, however, the cuts are being enacted over a six-month period (the length of the continuing resolution) as opposed to over the course of a full year, the effect would be roughly double.

I realize that the productive wealthy can’t be taxed but I hope they’re all thinking ahead and employing their own natural disaster experts or they might suffer right along with the rest of us.

Noah Kristula-Green at FrumForum:

I grew up in Japan from Kindergarten through high school, so when I learned about the earthquake that struck the country this morning, I immediately had flashbacks to the many disaster preparedness drills I had gone through growing up. The images on the television of the aftermath of the earthquake are undoubtedly extreme and the level of damage from this natural disaster is more than any that I can remember from my lifetime. In addition to the news on television, a glance at facebook shows that many of my friends from Japan are scared as well. It seems that many phone lines are not working and I am sure the mobile phone networks are over-saturated as well. I’m also learning interesting pieces of news, apparently the roof of an ice skating rink my friends and I used to go to as a kid has collapsed.

However, only Japan could be hit with an 8.9 scale quake and come out of it with only hundreds dead. Similarly large earthquakes in less prepared countries have killed tens of thousands almost instantly. (A 7.5 earthquake in Bangladesh killed 90,000 people within minutes in 2010).

When it comes to earthquake preparedness, Japan does set the gold standard. In addition to strict building codes, a concerted effort is made to train and drill the entire population. Schools regularly practice evacuation routes, classrooms keep enough helmets in stock for all students, and reminders about where the safest place to be during a quake (under tables or in doorways) are constantly reiterated. I have vivid memories of an earthquake simulation truck that would travel around to educate people about what a large quake would feel like. The truck would be cut open to reveal a diorama of a living room. A series of springs would be activated to shake the diorama at levels up to and beyond the scale of quakes that Japan would normally be hit by.

Just as important as the civil preparedness, the security of Japan’s infrastructure is also a high priority. Its nuclear power plants have managed to be controlled despite initial concerns of a cooling problem.

Earthquakes are also excellent times to remember that Japan’s architects and construction companies are some of the best and most thorough in the world. Web video is already circulating of Japanese skyscrapers swaying dramatically.  This video may look shocking to the uninitiated, but it is actually a very good thing: it is much better for a building to move and sway with the earthquake as opposed to resisting it.

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Filed under Foreign Affairs, Natural Disasters

Everbody Do The Hippie Punch!

Found on Jonathan Chait’s blog

Freddie at L Hote:

There are many myths within the political blogosphere, but none is so deeply troubling or so highly treasured by mainstream political bloggers than this: that the political blogosphere contains within it the whole range of respectable political opinion, and that once an issue has been thoroughly debated therein, it has had a full and fair hearing. The truth is that almost anything resembling an actual left wing has been systematically written out of the conversation within the political blogosphere, both intentionally and not, while those writing within it congratulate themselves for having answered all left-wing criticism.

That the blogosphere is a flagrantly anti-leftist space should be clear to anyone who has paid a remote amount of attention. Who, exactly, represents the left extreme in the establishment blogosphere? You’d likely hear names like Jane Hamsher or Glenn Greenwald. But these examples are instructive. Is Hamsher a socialist? A revolutionary anti-capitalist? In any historical or international context– in the context of a country that once had a robust socialist left, and in a world where there are straightforwardly socialist parties in almost every other democracy– is Hamsher particularly left-wing? Not at all. It’s only because her rhetoric is rather inflamed that she is seen as particularly far to the left. This is what makes this whole discourse/extremism conversation such a failure; there is a meticulous sorting of far right-wing rhetoric from far right-wing politics, but no similar sorting on the left. Hamsher says bad words and is mean in print, so she is a far leftist. That her politics are largely mainstream American liberalism that would have been considered moderate for much of the 20th century is immaterial.

Meanwhile, consider Tim Carney and Mark Levin. Levin has outsized, ugly rhetoric. Carney is, by all impressions, a remarkably sweet and friendly guy. But Carney, in an international and historical context, is a reactionary. Those who sort various forms of extremism differentiate Levin and Carney because Levin’s extremism is marked in language, and Carney’s extremism is marked in policy. The distinction matters to bloggy taste makers. Meanwhile, Hamsher’s extremism in language is considered proof positive of extreme left-wing policy platform. No distinction matters; genuinely left-wing politics are forbidden and as such are a piece with angry vitriol.

Greenwald, meanwhile, might very well have actually left-wing domestic policy preferences. I honestly have no idea; Greenwald blogs almost exclusively about foreign policy and privacy issues. In other words, his voice is permitted into the range of the respectable (when it is permitted at all; ask Joe Klein if Greenwald belongs at the adult table) exactly to the degree that it tracks with libertarian ideology. Someone whose domestic policy might (but might not) represent a coherent left-wing policy platform has entrance into the broader conversation precisely because that domestic policy preference remains unspoken.

I hardly even need to explain the example of Markos Moulitsas. Moulitsas is a blogging pioneer and one with a large audience. But within the establishmentarian blogosphere, the professional blogosphere of magazines, think tanks, and the DC media establishment, he amounts to an exiled figure. See how many times supposedly leftist bloggers within this establishment approvingly quote Moulitsas, compared to those who approvingly quote, say, Will Wilkinson, Ross Douthat, or John Cole. Do some of these bloggers have legitimate beef with Kos? Sure. But the fact that his blog is a no-go zone for so many publications, while bad behavior from those of different ideological persuasions is permitted, ensures that the effects of this will be asymmetrical. I believe that people have to create positive change by changing their own behavior, but I also am aware that the nominal left capitulates to demands that they know the right absolutely will not capitulate to themselves. And so the right wins, again and again.

No, the nominal left of the blogosphere is almost exclusively neoliberal. Ask for a prominent left-wing blogger and people are likely to respond with the names of Matt Yglesias, Jon Chait, Kevin Drum…. Each of them, as I understand it, believe in the general paternalistic neoliberal policy platform, where labor rights are undercut everywhere for the creation of economic growth (that 21st century deity), and then, if things go to plan, wealth is redistributed from the top to those whose earnings and quality of life have been devastated by the attack on labor. That there are deep and cogent criticisms of the analytic, moral, and predictive elements of neoliberalism is an argument for another day. That those criticisms exist, and that they emanate from a genuine left-wing position, is a point I find perfectly banal but largely undiscussed in political blogs. And that’s the problem. Whatever those bloggers are, they are not left-wing, and the fact that they are the best people can generally come up with is indicative of the great imbalance.

Matthew Yglesias:

I don’t really know what it means to criticize a writer for holding that his own views are “the truth of man.” Obviously, I agree with my political opinions and disagree with those who disagree with me. If I didn’t agree I’d change my mind.

But one point that I agree with here, is that while I’ll cop to being a “neoliberal” I don’t acknowledge that I have critics to the “left” of me. On economic policy, here are the main things I’m trying to accomplish:

— More redistribution of money from the top to the bottom.
— A less paternalistic welfare state that puts more money directly in the hands of the recipients of social services.
— Macroeconomic stabilization policy that seriously aims for full employment.
— Curb the regulatory privileges of incumbent landowners.
— Roll back subsidies implicit in our current automobile/housing-oriented industrial policy.
— Break the licensing cartels that deny opportunity to the unskilled.
— Much greater equalization of opportunities in K-12 education.
— Reduction of the rents assembled by privileged intellectual property owners.
— Throughout the public sector, concerted reform aimed at ensuring public services are public services and not jobs programs.
— Taxation of polluters (and resource-extractors more generally) rather than current de facto subsidization of resource extraction.

Is this a “neoliberal” program? Well, this is one of these terms that was invented by its critics so I hesitate to embrace it though I recognize that the shoe fits to a considerable extent. I’d say it’s liberalism, a view recognizably derived from the thinking of JS Mill and Pigou and Keynes and Maury “Freedom Plus Groceries” Maverick and all the rest. I recognize that many people disagree with this agenda, and that many of those who disagree with it think of themselves as “to the left” of my view. But I simply deny that there are positions that are more genuinely egalitarian than my own. I really and sincerely believe that liberalism is the best way to advance the interests of the underprivileged and to make the world a better place. I offer “further left” people the (unreturned) courtesy of not questioning the sincerity of their belief that they have some better solutions, but I think they’re mistaken.

That’s hardly a comprehensive reply to everything DeBoer wrote, but I hope it’s an explanation of what the hell happened to me.

Jonathan Chait at The New Republic:

I’ll cop to a couple things. First, I’m not a left-winger. I don’t agree with the left about very much. If you’re looking for genuine left-wing thought, this is not the blog for you.

Second, I don’t spend a whole lot of time discussing left-wing thought because my interest in ideas is primarily, though not completely, in proportion to their influence on American politics. There’s room for bringing in ideas that have little or no impact at the moment, but I don’t do much of that.

One time I did argue with the left was on health care reform, where you had left-wingers making the absurd claim that the Affordable Care Act did not improve the status quo. I found this created an angry reaction and multiple accusations that I was engaged in “hippie punching” or other unfair attacks on the left. So, from my perspective, it seems like left-wingers get upset if I engage with with and upset if I ignore them. Obviously, they wouldn’t be upset if I wrote about their ideas and agreed with them, but on most issues I don’t agree with them.

Naked Capitalism:

The post discusses the positions of quite a few political bloggers, including Ezra Klein, Matt Yglesias, Mickey Kaus, Jon Chait, Kevin Drum, and the economic, social and career forces that contribute to the rightward pull.

And I have to say I understand that part, even thought I do not sympathize. Readers have often said I should be on certain TV shows. And logically, I should be on at least some of them. But guess what, they won’t have me (not even Democracy Now, but that’s because they are not that interested in finance, and when they do that type of story, they seem to prefer either Real People or academics). Even though a TV veteran says it has a lot to do with bookers (they are pretty much all female and he insists they prefer to book men), I suspect another big reason is my outspoken views. One ought to think that would make me a useful guest, since good talking heads TV often involves friction between participants with diverging views. But some types of divergence appear not to be terribly welcome.

Kevin Drum:

I plead guilty to some general neoliberal instincts, of course, but I plead guilty with (at least) one big exception: I am very decidedly not in favor of undercutting labor rights in order to stimulate economic growth, and I’m decidedly not in favor of relying solely on the tax code to redistribute wealth from the super rich to the rest of us. What’s more, the older I get and the more obvious the devastating effects of the demise of the American labor movement become, the less neoliberal I get. The events of the past two years, in which the massed forces of capital came within a hair’s breadth of destroying the world economy, and yet, phoenix-like, have come out richer and more powerful than before, ought to have convinced nearly everyone that business interests and the rich are now almost literally out of control. After all, if the past two years haven’t done it, what would?

E.D. Kain at The League:

Now, I agree that a real left-wing – socialists, serious advocates of unionization, etc. – is not terribly well represented at least in the corners of the blogosphere that I haunt. I don’t believe, however, that this is simply due to some larger, concerted effort to ignore and marginalize the left.

First, I think that the left-wing as Freddie wants it to exist represents a very small demographic in this country. It is not surprising, then, that it is less represented in public debate and online.

Second and much more to the point, I’ve seen Freddie make this complaint before – that his arguments and positions were being written out of debate. This makes no sense to me. When we started The League, Freddie was by far the most linked-to among us. Even now that he no longer (or very rarely) blogs, his posts tend to generate links all over the place. Hell, it wasn’t long ago he got a link at The Dish for a comment he made on someone else’s blog post. This is because Freddie is a tremendous writer, and people find his arguments and ideas – and the way he presents them – compelling and interesting. He’s fun to read. And he gets all these links and responses and discussion in spite of the fact that he is a died in the wool leftist.

Indeed, so far as I can tell the greatest threat to Freddie’s ideas receiving no exposure by Very Serious People is Freddie deBoer himself. By removing himself from the debate he has contributed vastly to his own complaint. Because Freddie was getting his ideas out there and then he stopped. Maybe he was frustrated because his ideas weren’t spreading into the liberal blogosphere the way they were getting attention on many conservative and libertarian blogs. That’s fair – it certainly can be frustrating to feel as though you aren’t being taken seriously by the people who matter most. I guess I’d just suggest patience.

Actually patience might not be enough – Freddie should organize. If organized labor in this country is withering it isn’t for lack of money or political influence, it is because those who advocate for its survival are not organizing for its survival. In the age of the internet there is no reason people like Freddie aren’t creating their own publications to push their ideas to the surface. Freddie could do it, and he should. It would be far more beneficial to his cause then posts lamenting the decline of the left-wing in America.

The barrier to entry for ideas is lower than it has ever been – but those last hurdles – the Washington establishment; the Very Serious People and institutional bloggers and so forth – they can be hard to leap, no doubt about it. But I don’t think Freddie is right to stop trying.

Doug J.:

Can anyone deny that Glenn Greenwald will never get a gig at Cato or Reason, that Digby and Matt Taibbi will never get gigs at the Atlantic (I consider GG a libertarian)? Can anyone deny that Glenn Greenwald would generate more pageviews than anyone who is at Reason or Cato, that Digby or Matt Taibbi would get more pageviews than anyone but Sully at the Atlantic?

Of course, the first rule of establishment corporate journalism is that you do not call it establishment corporate journalism. ED (for example) would like to earn living as a journalist, so it’s natural that he pooh-poohs Freddie’s point. I don’t mean to single ED out; to the contrary, the fact that he takes deBoer’s point seriously at all puts him miles above Joe Klein and James Fallows and the rest, who will always simply ignore these sorts of arguments.

They may not even know that these arguments are valid. After all, it’s hard to make a man understand something when his livelihood depends on him not understanding it.

Steve Hynd at Firedoglake

Mike Konczal at Rortybomb:

3. One thing I’ve noticed that separates the people Freddie disapproves of from everyone else is that the ones Freddie disapproves of are primarily journalists. Journalists of policy, of ideological movements and changes, and of institutional day-to-day fighting, but liberal people whose primary career training and arc are one of journalism. A journalistic approach to politics has its strengths and its weaknesses. Its strengths are a solid understanding of the micro elements that move things forward or backwards yard-by-yard. Its weaknesses can be a form of source capture, and a myopia on what is achievable in the short run rather than what moves things in the long run. I don’t think the professionalization of bloggers as reporters has moved them rightward, but it could be argued that it has caused them to focus on the short-term, in part because what the Democrats were trying to be bill-wise required a lot of explanation and in part because journalism requires that.

In its worse form, it becomes what Jay Rosen and others call A Church of the Savvy, where access, the art of the possible, and a healthy disdain for broader scope thinking are all privileged.   This is less disdain for socialist or left-wing thinking (which is disdained by all kinds of people) but disdain for outsiders, a broader and more worrisome issue than Freddie lets on.

4. It’s important to realize that the right-wing wonks Freddie seems to respect as building a long-term vision are running under different assumptions of what to do.  To them, the problem isn’t thinking of a better solution to a problem, it’s arguing why there is no problem.   This comes from an explicit goal to view their project as an ideological one, one that comes out of a Banfield critique that social science is necessarily ideological. This, by definition, orientates towards long-term visions of the possible.

Freddie might want to engage with a left-modified form of the Banfield critique, one that points out when you have a wonk politics hammer every problem looks like a nail. Aaron Bady noticed this with the wonkosphere’s embrace of DIY U and other producitivity related ‘solutions’ to higher ed (also googling that made me realize I stole the title of this from Aaron, sorry!). If all you know are techniques of neoliberalism, then those are the solutions you’ll naturally gravitate towards. That’s different than where Freddie goes, which is one centered around prestige and access.

5. I’ll gladly defend Ezra and Matt on the charges Freddie throws at them. Their key points they raised early over the past two years – that the Senate would become obstructionist not just at a bill level but in a “running down the clock” manner and that would have major consequences (Ezra), that the GOP would not pay a price for their obstruction as people look at their checkbooks when they vote (both) and that the Federal Reserve is a major battlefield for the recovery and progressives/liberals aren’t ready to move, even intellectually, on how to fight for it (Matt) are all major things that happened from the past two years.   Ezra in particular has covered the day-to-day amazingly well with a large quantity of work meant to be accessible to a wide range of readers (I write 2 posts every other day and feel like Charles Dickens), and if Freddie’s real critique is that liberals don’t likes unions Ezra has written a lot about how the Obama administration is overlooking them.

As for Matt’s neoliberalism stuff, I read it is coming from his engagement with land use. But to make it clear, I’m in favor of a hella robust regulatory state, but I agree with large parts of his critique. If you worry about why work associated with women is denigrated to second-class work and why women are underpaid relative to men you have to look at why dental hygenists do the same work as dentists for less pay and prestige. If you worry about the carceral state, our policy of putting the maximum number of people within the criminal disciplinary net and high recidivism and subsequent lack of mobility, you have to look at that fact that it can be illegal to hire ex-cons as low-level service employees; illegal to give licenses, and thus hire, ex-cons for things like “barbering, nail technicians, cosmetology and dead animal removal.”

Andrew Sullivan:

The Dish has always tried to remain friendly to outsider voices and distance itself from the Inside the Beltway closed conversation. In that sense, the most glaring lack in Freddie’s post is a list of who exactly we ought to be reading and engaging but aren’t. Isn’t that the obvious solution? If we’re missing worthy far-left blogospheric voices, who are they?

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Filed under New Media, Politics

After The Love Is Gone…

Andrew Ross Sorkin at Dealbook at NYT:

Daniel S. Loeb, the hedge fund manager, was one of Barack Obama’s biggest backers in the 2008 presidential campaign.

A registered Democrat, Mr. Loeb has given and raised hundreds of thousands of dollars for Democrats. Less than a year ago, he was considered to be among the Wall Street elite still close enough to the White House to be invited to a speech in Lower Manhattan, where President Obama outlined the need for a financial regulatory overhaul.

So it came as quite a surprise on Friday, when Mr. Loeb sent a letter to his investors that sounded as if he were preparing to join Glenn Beck in Washington over the weekend.

“As every student of American history knows, this country’s core founding principles included nonpunitive taxation, constitutionally guaranteed protections against persecution of the minority and an inexorable right of self-determination,” he wrote. “Washington has taken actions over the past months, like the Goldman suit that seem designed to fracture the populace by pulling capital and power from the hands of some and putting it in the hands of others.”

Over the weekend, the letter, with quotations from Thomas Jefferson, Ronald Reagan and President Obama, was forwarded around the circles of the moneyed elite, from the Hamptons to Silicon Valley. Mr. Loeb’s jeremiad illustrates how some of the president’s former friends on Wall Street and in business now feel about Washington.

Mr. Loeb isn’t the first Wall Streeter to turn on the president. Steven A. Cohen, founder of the hedge fund SAC Capital Advisors and a supporter of the Obama campaign, recently held a meeting with Republican candidates in his home in Greenwich, Conn., to strategize about the midterm elections, according to Absolute Return magazine.

Other onetime supporters, like Jamie Dimon, chief executive of JPMorgan Chase, also feel burned by the Obama administration, people close to him say.

That the honeymoon between Washington and Wall Street has turned to bitter recriminations is not news, given that the administration had long pledged to revamp Wall Street regulation in the wake of a crisis that rattled the global financial system.

Less than two years ago, Democrats received 70 percent of the donations from Wall Street; since June, when the financial regulation bill was nearing passage, Republicans were receiving 68 percent of the donations, according to an analysis by the Center for Responsive Politics, a nonpartisan research group.

But what is surprising is that some of the president’s biggest supporters have so publicly derided his policies, even at the risk of hurting their ability to influence the party in the future. Issues like the carry-interest tax on private equity or the Volcker Rule have become personal.

Why so personal? The prevailing view is that bankers, hedge fund mangers and traders supported the Obama candidacy because he appealed to their egos.

Mr. Obama was viewed as a member of the elite, an Ivy League graduate (Columbia, class of ’83, the same as Mr. Loeb), president of The Harvard Law Review — he was supposed to be just like them. President Obama was the “intelligent” choice, the same way they felt about themselves. They say that they knew he would seek higher taxes and tighter regulation; that was O.K. What they say they did not realize was that they were going to be painted as villains.

Paul Krugman:

I talked to some financial-industry backers of Obama back during primary season; they really didn’t know or care much about policy issues, but were in love with Obama over his style — and also over the prospect of being in his inner circle, something they knew wouldn’t happen with Hillary. Now they’re mad because they don’t feel that they’re getting enough stroking.

And you have to bear in mind that this comes after Obama has made immense efforts to placate the financial industry. There were no bank nationalizations; there were hardly any strings attached to bailouts; the financial reform bill was by no means draconian given the scale of the disaster. But Wall Street is furious that Obama might even hint that they caused the crisis — which he does, now and then, because, well, they did.

And as far as I can tell, hardly any of the new anti-Obamanites is thinking at all about what will really happen once John Boehner is speaker.

You know, one might have thought that having all the money in the world would make people less petty, less concerned about whether they feel that they’re in the in-group. But nooooo [/Belushi]

Daniel Indiviglio at The Atlantic:

In fact, most of those who I know on Wall Street aren’t particularly politically principled. They basically have the view that the government can do its thing, and they can do theirs. More regulation? They’ll just shrug and find loopholes or new ways to make money. Higher taxes? They have accountants with sophisticated income recognition strategies that handle that sort of nuisance. Their involvement in politics essentially consists of donating money to important politicians so that they can be relatively sure that government will generally leave them alone, or lend them a helping hand in case of emergency.

And that’s what they expected from President Obama. Instead, he adopted the popular narrative that Wall Street was the villain. This was a shock, because these bankers don’t share that view. As far as they’re concerned, a very small portion of them actually were responsible for the problems that led to the financial crisis. Indeed, many of them suffered disproportionally, as they had a year or two where their bonuses were far below what was anticipated, even though their individual performance hadn’t declined. They felt that they were in many ways victims of the housing bubble as well, even if their consequence wasn’t foreclosure or long-term unemployment like so many Americans.

That’s not to say people — or even President Obama — should necessarily by sympathetic to their bruised egos. This is just the explanation. If these Wall Street bankers and traders had analyzed President Obama and his base’s politics on a deeper level, then they would have seen precisely the treatment they got. Frankly, it could have been worse if the far-left progressive wing got their way. Of course he would vilify Wall Street after a credit crunch nearly caused another depression. After all, politicians need someone to blame in such situations. What other outcome could they have reasonably expected?

Naked Capitalism:

Please. Are you going to seriously tell me big financial players are up in arms because Team Obama occasionally calls them bad names? That explanation is so obviously bogus as to call for a look for the real reason. There’s a much more straightforward explanation, and it’s called “follow the money.”The key omission from this story is the name Rahm Emanuel. Rahm, a former partner at Wasserstein Perella, was particularly effective at fundraising from private equity funds and hedge funds.

So re-read this key phrase: ” They say that they knew he would seek higher taxes and tighter regulation; that was O.K.” But what the article buries in plain sight is the fact that the plans to tax hedge and PE funds carried interest at ordinary income tax rates, rather than a preferential capital gains tax rates, has the 2 and 20 crowd seeing red. And in case you had any doubts, there was no justification for this special treatment in the first place. Loren Steffy of the Houston Chronicle noted (hat tip Independent Accountant) provides a deft skewering:

Dear IRS: Please note that beginning this year, I am no longer earning an income. From now on, I am compensated through what I like to call column interest. It isn’t pay. It’s a capital gain that I receive in exchange for providing about 2,000 words a week to this newspaper. Please lower my tax rate accordingly. hey, you can’t blame me for trying. After all, a similar strategy has worked for years for money managers at hedge funds and private equity firms. … The private investment community is decrying the move as a massive tax increase, is if oblivious to the fact that it’s enjoyed an unfair tax break for years. … Let’s set aside the rather silly notion of private equity as an engine of job creation–most buyouts result in big job cuts–and focus on the inequality. Private equity managers typically collect a 2 percent annual fee on assets in the fund, which is taxed as income. They also scoop up 20 percent of their funds’ annual profits, which is known as carried interest. … Profit-sharing plans for just about everyone else are taxed as income. … Tax law is a murky world, but one basic principle of our tax code is that people who perform similar jobs for similar pay should receive similar tax treatment. That’s not the case in the investment world.

Sorkin does mention Steve Schwarzman’s infamous outburst (”likened the administration’s plan for taxes on private equity to ‘when Hitler invaded Poland in 1939.’”) but does not indicate the fact that this is the major reason for the falling out among Obama’s former backers. It’s one thing to raise taxes generally, the big boys can stomach that. But it’s quite another to raise taxes in a way that targets them. (And note, by the way, that this measure failed, but the industry was still deeply offended at this show of disloyalty).

Similarly, Sorkin later argues for the reasonableness of the revolting businessmen:

Mr. Loeb’s views, irrespective of their validity, point to a bigger problem for the economy: If business leaders have a such a distrust of government, they won’t invest in the country. And perception is becoming reality.

Just last week, Paul S. Otellini, chief executive of Intel, said at a dinner at the Aspen Forum of the Technology Policy Institute that “the next big thing will not be invented here. Jobs will not be created here.”

Yves here. This is patently ridiculous and disingenuous. First, Sorkin chooses to overlook that Otellini’s comments about inventions and jobs is based on his throwing in his weight with the venture capital industry, which was one of the groups that fought the proposed taxes on carried interest. The argument, implicitly is that the VC industry would shrink or disappear were there no carried interest tax break, and that we’d therefore see much less new business formation.

Both those ideas are questionable. Yes, the VC business as it is currently constituted might shrink, but a lot of angel investors do deals as principals or with small syndicates. One can as easily argue with so many people now possessing Wall Street experience, we’d likely see capital move through new channels to small ventures.

But more important, the idea that VC is critical to new business growth is complete urban legend. Amar Bhide, in the first systematic study of successful new ventures, determined that VC contributes very little to the funding of new businesses, even the most successful ones (his proxy was the Inc. 500).

Second, the line that Sorkin parrots from big businesses, “Be nice to us or we’ll quit investing,” is also bunk. Guess what? As we’ve indicated, big businesses were net disinvesting even during the corporate-friendly Bush Administration. And to the extent they are leery of investing now, far and away the biggest reason is macro uncertainty. It’s awfully hard to plan if you aren’t sure whether the outlook is for inflation or deflation. But businesses will cavil like crazy about government intervention because it is one of the few variables they might be able to influence.

And it’s also remarkable that Sorkin can treat the self-serving and misleading canard, “We’re mad that Obama is treating us like bad guys” seriously. For anyone at the TBTF firms, it’s patent rubbish. The firms got overt and back door bailouts so they could shore up their equity capital, and what do they do? Pay a big chunk of government-provided largesse out to themselves in record 2009 bonuses. It’s one of the most blatant acts of looting on record, and the industry deserves every bit of scorn the authorities can muster dumped on its head.

Felix Salmon:

Now Sorkin and Dealbook are the exemplars, at the NYT, when it comes to the journalistic virtue of putting primary documents online. Their Scribd account has over 100,000 subscribers and has had over 2 million visits; it’s much more active than the parallel documents.nytimes.com format used by much of the rest of the paper.

But anybody reading Sorkin’s column today simply has to take him at his word when he says that Loeb’s letter “sounded as if he were preparing to join Glenn Beck in Washington over the weekend.”

If I wanted, I could paint I different picture of the letter. I could point out that there are no fewer than three quotes from Barack Obama on its first page, talking about the importance of helping others and spreading wealth across the whole American population. I could note that Loeb is just as harsh on capitalists as he is on the government.

Many people see the collapse of the sub-prime markets, along with the failure and subsequent rescue of many banks, as failures of capitalism rather than a result of a vile stew of inept management, unaccountable boards of directors, and overmatched regulators not just asleep, but comatose, at the proverbial switch.

And he also sees new government rules being helpful on this front:

Many of the boards we have come across are populated by individuals who rely on the stipends they receive from numerous corporate boards and thus appear motivated primarily to ensure continuing board fees, first-class air travel and accommodations, and a steady diet of free corned beef sandwiches until they reach their mandatory retirement age. We are therefore encouraged by the recently finalized proxy rules, which will ease the nomination and election of directors by shareholders.

He’s even pulling with the government when it comes to cracking down on sleazy for-profit colleges:

Our perspective on the government’s increased willingness to use its regulatory muscle enhanced our short positions in the for-profit education space. Indeed, this summer certain government actions taken regarding these companies served to accelerate the unfolding of our thesis on these names.

So, who has the more accurate view of Loeb’s letter, me or Sorkin? The answer is Sorkin: I’ve been quoting very selectively. But in one crucial respect I’m being much more open and transparent about the letter than he is: I’m linking to it. He’s not.

There’s no legal or journalistic reason why Sorkin shouldn’t link prominently to the letter. When I spoke to Richard Samson, the NYT’s top lawyer on such matters, he was clear that although there are copyright reasons why the NYT might not post the letter itself, there’s absolutely nothing to stop the paper from linking to where the letter is posted elsewhere. And in general, Sorkin’s Dealbook blog is pretty good when it comes to external links.

I see a few possible reasons why Sorkin might not link to the letter, none of them good.

First, he might be moving Dealbook away from the blog concept (and it was always more of an email newsletter than a blog to begin with) to something much more self-contained. Dealbook has been hiring aggressively, and is clearly setting itself up in opposition to, and in competition with, other online sources of financial news. Maybe that makes Sorkin more hesitant to link out than he was in the past.

Alternatively, maybe Sorkin is happy to link out in theory, but he has problems linking specifically to the relatively juvenile and tabloid Dealbreaker. I don’t think that’s true: Dealbook does link to Deabreaker on a semi-regular basis.

There’s a couple of other possibilities, too, which are more worrying. Perhaps Sorkin got the letter directly from Loeb himself, on the condition that he not publish it, and he felt that linking to it would violate the spirit of that agreement. Or maybe there was no formal agreement at all, but Sorkin just felt that linking to the letter would annoy Loeb, and therefore decided not to do so in order to help maintain his relations with a source.

Or maybe it was just an oversight, further evidence that linking to primary sources simply isn’t very important at the NYT.

James Kwak at The Baseline Scenario:

I’ve criticized the Obama administration in many more words than Daniel Loeb. But putting the blame on certain categories of people does not somehow absolve “capitalism.” Our capitalist system–which until recently we considered the best, most pure version in the world–allowed incompetent people to become executives (and to run hedge funds), allowed incompetent people to become directors and to avoid any responsibility for their actions, and allowed companies to swamp regulators with battalions of high-priced lawyers and lobbyists.

This is a basic category error. Capitalism is an economic system; managers, directors, and regulators are people. They are not mutually exclusive. If you want to say that capitalism necessarily means universally good managers, responsible directors, and effective regulators, then that’s an argument you have to make (and good luck making it).

Just because you make a lot of money doesn’t mean you know what you’re talking about. Unfortunately, in this country if you make a lot of money, a lot of people listen to you.

(Here’s the full letter. Along the way, Loeb says that the current decline in confidence and economic activity is due to the SEC’s lawsuit against Goldman.)

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Filed under Economics, Political Figures

Timmy, The Bloggers And The Background, Which Is Apparently A Portrait Of Robert Rubin

Alex Tabarrok:

Yesterday, Tyler, myself and a handful of other economics bloggers had a chance to discuss the economy with Treasury Secretary Geithner and other treasury officials. Here are a few random notes.

There was deep skepticism about the financial industry and about reform from some of the bloggers. More let’s say “radical” approaches such as Treasury taking an equity stake in underwater homes or giving everyone a guaranteed income were brought up. I was surprised to find myself on the side of the more conservative Treasury officials who cogently argued that such reforms were neither politically viable nor likely to work.  Treasury gave a good argument that reform had been deep and meaningful.

A few good lines from a senior treasury official as I recall the gist:

  • “Markets believe we can borrow. The public doesn’t. We need both to move forward on the fiscal front.”
  • “Businesses are investing in a way that shows more confidence than they are talking.” (graph here, see the last year or so AT)

There was a recognition that the Fed could do “dramatic” things but a sense that the theory here was uncertain and untested.

The best question of the day came from Tyler. The discussion was on the financial reform bill and how it changed the incentives of players in the financial industry by creating more risk for them. Tyler interrupted with “What I really want to know is how your incentives have been changed! What is to say that next time the decision will not be made to again bailout the bondholders?”

Felix Salmon:

Treasury’s blogger meeting on Monday has been covered by quite a lot of the participants — see Lounsbury, Tabarrok, and Smith.

On Wednesday, there was another meeting, this time with professional, salaried bloggers, with a decidedly center-left bias. (Tim Fernholz, Mike Allen, Derek Thompson, Shahien Nasiripour, Nick Baumann, Ezra Klein, me. Matt Yglesias was literally left out in the rain, unable to get past Treasury security.)

I half understand why Treasury makes the distinction between the two types of bloggers, but Ezra and I both felt a little jealous that we had to compete with Mike Allen asking about politics when we could have listened to a detailed and wonky discussion between Steve Waldman and Tim Geithner on the subject of bailout incentives.

The discussion was all held on deep background, so I can’t quote anybody. I can tell you that Geithner looked healthier than the past couple of times I’ve seen him: I daresay he’s actually getting some sleep these days, which has got to be a good thing. I also learned a fair amount about how Treasury views the world.

The big picture, at least as I grokked it, is that although the recovery started off stronger than Treasury had hoped, the broad economy is still in a pretty weak position. The Fed is doing its part to try to keep a certain amount of momentum going, but fiscal policy is harder, because it needs the cooperation of Congress. And it’s far from clear what kind of fiscal legislation can be passed at this point.

On housing, the main message from the big conference on Fannie and Freddie is that there’s a broad-based consensus, Rick Santelli rants notwithstanding, that large-scale government participation in the housing market is necessary to prevent further house-price declines. And yes, Treasury would very much like to make sure that house prices don’t fall any more than they have already. There’s no Bush-style policy of trying to maximize homeownership, or anything like that, and indeed Treasury now seems pretty resigned to the fact that its much-vaunted loan-modification program is going to have only a pretty marginal effect, doing more to delay foreclosures than to prevent them. But the very powerful government guarantee on Frannie’s bonds is here to stay, you won’t be surprised to hear. And even delaying foreclosures can be a good thing if it helps to give the broader economy a bit of time to recover.

Naked Capitalism:

Readers may wonder why I haven’t written about my visit on Monday to the Treasury, but truth be told, I headed out afterward with Mike Konczal and Steve Waldman to get a drink, and we all looked at each other quizzically. I said something along the lines of “I’m not certain there is anything to write about,” and they nodded in agreement. I had less than a half page of notes.

That isn’t to say we didn’t spend nearly 2 1/2 hours in a high-ceilinged conference room, and that we didn’t engage with Treasury officials, including Timothy Geithner, in what looked like conversation. But the assumptions of both sides re process as well as substance were so far apart that it often felt like we were talking past each other.

One part of the dynamic was the home court advantage the Treasury enjoys. This is their drill, their offices, they no doubt used their spiel on others and have it pretty well debugged, and more important, they play well off each other (they give the impression of having good rapport with each other; there was some banter on their side). So they have message discipline and stay unified and still manage to look relaxed and informal. By contrast, we seven bloggers (the others were Tyler Cowen, Alex Tabarrok, Phil Davis, and John Lounsbury) were on hold in the very large corridor till the conference room cleared up, which meant we didn’t even have the chance to ask each other, “And what do you want to ask about?” Our interests were likely to be (and were) somewhat divergent, but it would have been nice to know to what degree.

Despite our heterogeniety, we all took a skeptical posture towards the Treasury team. One has to think they anticipate that, which then begs the question of what they expect to accomplish with these meetings. We aren’t journalists, so the access card does not work; the infrequency and format of these sessions means they don’t build personal rapport (and there are good reasons why not; from our end, it costs time and money to go to DC; from their end, we aren’t important enough to warrant more frequent contact).

So they may have other motivations, but a safe assumption is that they regard this as marketing, and a famous cliche is “50% of what I spend on advertising is wasted, I just don’t know which 50%.” We probably look like part of the wasted 50%, but they can’t be certain, and the costs to them of having this sort of meeting are low, so they might as well keep the experiment going.

Mike Allen at Politico:

ADMINISTRATION MINDMELD: The virtue of action on Social Security is that it demonstrates the ability to begin to affect the long-run deficits. Social Security isn’t the biggest contributor to the problem – that’s still health-care costs. But ti could help a little bit, buy time, and strengthens the odds of a political consensus behind other spending cuts or tax increases. Most importantly, it would establish more CREDIBILITY with the MARKETS. The mood of the world at the moment (slightly excessive, from the administration’s point of view) is that if you don’t do anything with spending cuts, it doesn’t get you credibility.

Tim Fernholz at Tapped on Allen:

Sure makes it seem like the administration wants to cut Social Security, doesn’t it? By chance, I was at the same deep-background briefing where Allen had his “mindmeld,” and I have to say, I don’t think he’s got it right. After reviewing my notes and a recording of the conversation, here’s my take. (The rules for this conversation were no direct quotes and no identifying the senior administration official in question.)

Allen references a part of the conversation that concerned the Deficit Commission and what the official might know about its agenda. The official believed that the largest consensus was forming around an undefined plan to support the long-term solvency of Social Security and was discussing why that hypothetical plan might help bolster political will for other deficit-reduction ideas. The official would note that Social Security is already solvent for decades.

The most important omission from Allen’s item is that the official concluded the conversation by noting that Social Security is not a generous benefit compared to other public pensions around the world and that cutting benefits, even years in advance, would be difficult to justify. More symbolically, Allen doesn’t mention that the official cited Paul Krugman when talking about Social Security’s contributions to the deficit. Finally, the reason the administration official was interested in credibility before the markets is so the government could borrow more money for temporary fiscal stimulus.

Brad DeLong

Matthew Yglesias on Allen:

Brad DeLong glosses this as part of why “Friends Don’t Let Friends Read Politico.” And certainly it is a case study in why you can’t go run and panic after reading a thinly sourced item in a traffic-hungry publication. But part of the issue here, it seems to me, is that DC officialdom ought to realize that its obsession with off the recordy-ness has some serious downsides. Treasury did two meetings this week, one that was with professional blogger types and one that was more with professional economists who also blog, and most of the attendees seem to have come away quite impressed. If that’s the case, wouldn’t people able to listen to a recording of the full session likely also be impressed? And wouldn’t it be easier to clear up misconceptions that Allen’s writeup may have created?

Structural shifts in the media industry away from the “three TV networks and a bunch of local newspaper monopolies” model have shifted the balance of power away from journalists and toward flacks. Consequently, if people want to hold off the record briefings with “senior officials” plenty of writers are going to show up. But merely because people can get away with that kind of thing doesn’t necessarily make it a good idea.

Ezra Klein:

There’s been some meta-discussion over a recent meeting between reporters, bloggers, pundits and Treasury officials. The meeting existed under the worst of all media rules: Background.

On-the-record is, well, on the record. Somebody tells me something and I tell you. Off-the-record is just the opposite: Somebody tells me something and I can’t tell you that I was told this. I can be informed by it, but no one knows how I got the information. The disadvantages of this are obvious. But the advantage is a much more honest and free-flowing conversation.

Background has neither the transparency of being on-the-record or the freedom of being off-the-record. It means I can tell you that someone told me this (“a senior Treasury official”). I really don’t understand why people use it.

But use it they do, and all the time. My favorite background offer from this administration came in an e-mail the night before HealthCare.gov launched. It was a lot of standard information on the new site that I could attribute to an “administration official” if I so chose. Why they wanted anonymity to say things like “HealthCare.gov is a new, easy to use website that helps consumers take control of their health care and make the choices that are right for them by putting the power of information at their fingertips,” I’ll never know. Was Gibbs seriously going to chew someone out for going on-the-record with that?

Mike Konczal at Rortybomb:

On Monday I took part in a blogger meeting with several members of the Treasury Department. Alex Tabarrok has a writeup, as does Yves Smith and John Lounsbury has an extensive one as well.

First off, here’s a picture of me with Robert Rubin’s portrait:

Second, have you ever seen Miracle on 34th Street? Remember at the end when that guy legally is Santa Claus because he has all that mail delivered to him? I felt a little like that seeing “Mike Konczal, Rortybomb” on paper that had Treasury’s seal:

Heh.

It was a pretty casual meet and greet. There weren’t any presentations, nothing to be sold on. We went to questions immediately. Geithner is very smart and personable, and it was very useful to chat with Treasury officials on background over the strengths and weaknesses of the financial reform bill.

[…]

HAMP

– They are sticking by HAMP. The narrative seemed to change from helping homeowners to spacing out the foreclosures. I asked them to repeat it, because the idea that billions of taxpayer dollars are being spent to smooth out foreclosures for banks struck me as new narrative – it’s explicitly extend-and-pretend, and also fairly cynical.

– 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.

– Overall, there seemed to be a sense of “we are done here” from the meeting. Maybe it was the fact that it is August, the informal manner of the meeting and a news cycle is driven by insane things, but there was a sense with the financial reform bill passed, deadlock in Congress and a Federal Reserve tip-toeing around its mandate things were going to slow down and options are more or less removed from the table. Which is a very scary thought with the economy the way it is.

Atrios:

Really fucking unbelievable. As I think I said to Mike at Netroots Nation, if HAMP is actually a program designed to boost the housing market and funnel money several billion more dollars to banks, it’s also a really fucking horrible and stupid and inefficient way to do that even without the “screwing people over” part.

Shahien Nasiripour at Huffington Post

EARLIER: Meet The Financial Bloggers, Timmy

Timmy Meets With Even More Bloggers

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Filed under Economics, New Media, The Crisis

That’s Some Professional Hippie Punching, Mr. Gibbs

Sam Youngman at The Hill:

The White House is simmering with anger at criticism from liberals who say President Obama is more concerned with deal-making than ideological purity.

During an interview with The Hill in his West Wing office, White House press secretary Robert Gibbs blasted liberal naysayers, whom he said would never regard anything the president did as good enough.

“I hear these people saying he’s like George Bush. Those people ought to be drug tested,” Gibbs said. “I mean, it’s crazy.”

The press secretary dismissed the “professional left” in terms very similar to those used by their opponents on the ideological right, saying, “They will be satisfied when we have Canadian healthcare and we’ve eliminated the Pentagon. That’s not reality.”

Of those who complain that Obama caved to centrists on issues such as healthcare reform, Gibbs said: “They wouldn’t be satisfied if Dennis Kucinich was president.”

Chris Bowers at Open Left:

Oy, on many levels.

If the White House really doesn’t think it has any problems among self-identified liberals or progressives, and that all the complaints are coming from a grasstop elite, it needs to look at the data again.  From 2008 to 2010, President Obama has suffered far more erosion of support among self-identified liberals than among self-identified moderates or conservatives:

  • In 2008, according to exit polls, 89% self-identified liberals voted for President Obama.  Over the past four weeks, according to Gallup, President Obama’s approval rating among self-identified liberals has averaged 74%. That is a decline of 15 points.
  • In 2008, according to exit polls, 60% of self-identified moderates voted for President Obama.  Over the past four weeks, according to Gallup, President Obama’s approval rating among self-identified moderates has averaged 54%.  That is a decline of 6 points.
  • In 2008, according to exit polls, 20% of self-identified conservatives voted for President Obama. Over the past four weeks, according to Gallup, President Obama’s approval rating has averaged 24% among self-identified conservatives.  That is an increase of 4 points.

So, according to Gallup, disapproval among self-identified liberals accounts for the majority of President Obama’s approval rating underperformance compared to his 2008 vote share (from the perspective that the smaller decline among moderates is partially canceled out by the small gain among conservatives).  If it were not for President Obama’s decline among liberals, there would be virtually no difference between his 2010 approval rating and 2008 voter performance.
Maybe the White House knows that its problem among self-identified liberals is not confined to the grasstops.  Maybe it is “reaching out” to liberals in this insulting manner because it figures that while it has lost more support among liberals than among any other group, those liberals are still going to vote Democratic anyway.

Jane Hamsher at Firedoglake:

Spiro Agnew — sorry, Robert Gibbs — says “the professional left is not representative of the progressives who organized, campaigned, raised money and ultimately voted for Obama.” Well, the Obama in the White House is not representative of the Obama who organized, campaigned, raised money and ran for office, so I guess it’s a wash.

Gibbs does the only thing you can do when trying to defend a record of corporatist capitulation: triangulate against your critics as extremists. But the fact is, the positions Obama has abandoned aren’t the exclusive territory of Dennis Kucinich. Standing up to the banks and the insurance companies, reducing the political influence of corporate money, defending Social Security and ending the wars are issues that are broadly popular with the American public. That’s why Obama campaigned on them in order to pave his way to the White House.

I don’t recall Obama making campaign promises to increase the defense budget and cut Social Security benefits, order the assassination of American citizens without due process, or cut sweetheart deals with the pharmaceutical industry in exchange for political patronage. Where was the bold, inspirational speech where he vowed to give AT&T immunity for operating their own private corporate spy network, tax people’s health insurance benefits, abandon gay rights and throw a party in the rose garden for Bart Stupak’s presidential signing statement? When did he promise to re-appoint Ben Bernanke, protect the bonuses of bailed out bankers and keep shoveling money at Wall Street?

Marshall Ganz was the field organizer responsible for Obama campaign programs that motivated those progressive volunteers. During the health care debate, when it was clear Obama was abandoning his campaign rhetoric on health care, he said “If Barack had campaigned on the politics of narrow self-interest, he never would have won the nomination, let alone the election.”

Maybe Gibbs should stop and revisit some of those campaign speeches and ask himself if the guy in the oval office looks like the guy on the campaign trail. He might figure out why people are upset, and it’s not just the “professional left.” According to Gallup, Obama’s approval ratings among Hispanics was 73% in January of 2010 and is now at 54%. That’s largely over his failure to fulfill the promises he made about immigration.

Are they the “professional left” too?

Glenn Greenwald:

So, to recap:  (1) The Professional Left are totally irrelevant losers who speak for absolutely nobody, and certainly nobody in Real America who matters; but (2) they’re ruining everything for the White House!!!  And:  if you criticize the President, it’s only because you’re such a rabid extremist that you harbor a secret desire to eliminate the Pentagon — that’s how anti-American you are!  You’re such a Far Left extremist that Dennis Kucinich isn’t far enough Left for you, you subversive, drug-using hippies!  You’re so far to the Left that you want to turn the U.S. into Canada.  As David Frum put it today:  “More proof of my longtime thesis, Repub pols fear the GOP base; Dem pols hate the Dem base.”

The Democrats have been concerned about a lack of enthusiasm on the part of their base headed into the midterm elections.  These sorts of rabid, caricatured, Fox-News-copying attacks on the Left will undoubtedly help generate more enthusiasm — more loud clapping — for the Democrats.  I know I’m eager to go canvass and clap for Democrats after reading Gibbs’ noble, inspiring vision.  If it were Gibbs’ goal to be as petulant and self-pitying as possible, what could he have done differently?

Perhaps one day the White House can work itself up to express this sort of sputtering rage against the Right, or the Wall Street thieves who destroyed the American economy, or the permanent factions that control Washington.  Until then, we’ll have to satisfy ourselves with White House explanations that the Real Culprits are not (of course) them, but the Professional Left, that is simultaneously totally irrelevant and ruining everything.  I’ll give credit to Gibbs for putting his name on this outburst:  these are usually the things they say anonymously and then deny afterward on the record that it’s what they think.

Nate Silver:

Lord knows I’ve had my share of disagreements with the “professional left”, as Press Secretary Robert Gibbs derisively referred to them in a rant to The Hill this morning. And I tend to endorse Jonathan Cohn’s view that Obama has had a reasonably accomplished first year-and-a-half in office that perhaps has been taken for granted by some liberals.

But if there is a gulf between what Obama has accomplished and the amount of credit that some liberals are willing to give him for it, it just became much wider today with Gibbs statements like “those people ought to be drug tested” and “they wouldn’t be satisfied if Dennis Kucinich was president”.

One problem that Obama is having — and not just on the left, although it might be most acute there — is the dissonance between the grand, poetic narratives of the campaign trail and the prosaic and transactional day-to-day grind of governance. To some extent, this is intrinsic to the nature of the respective activities. Still, for the 70 million who voted for Obama, there was a sense that — after a difficult eight years for a country challenged by two wars, two recessions, Hurricane Katrina, and the worst act of terrorism in history — things might finally start to be different. That change had come. That progress was happening. That politics were becoming more elevated. A black man had just received 365 electoral votes, for crying out loud!

The euphoric feeling among liberals in the days between the election and the inauguration seems so quaint now — like something that happened decades ago — but it was very tangible at the time. Conservatives, for their part, were willing to give Obama the benefit of the doubt, with his approval and favoability ratings sometimes soaring into the 70s: such a post-election “bounce” had once been commonplace in the days of Eisenhower and Kennedy, but had rarely been seen in the post-Watergate era.

But Obama was never really able to capitalize on that momentum. Perhaps, in the face of the headwinds of an ever-deepening jobs crisis (far worse than his advisors had anticipated) and unrepentant Republican obstructionism (a canny, even ballsy strategy in retrospect), there was no way he really could have.

Nevertheless, I suspect that for most liberals, any real sense of progress has now been lost. Yes, the left got a good-but-not-great health care bill, a good-but-not-great stimulus package, a good-but-not-great financial reform plan: these are a formidable bounty, and Obama and the Democratic Congress worked hard for them. But they now read as a basically par-for-the-course result from a time when all the stars were aligned for the Democrats — rather than anything predictive of a new direction, or of a more progressive future. In contrast, as should become emphatically clear on November 2nd, the reversion to the mean has been incredibly swift.

What liberals haven’t had, in other words, is very many opportunities to feel good about themselves, or to feel good about the future. While the White House has achieved several wins, they have never been elegant or emphatic, instead coming amidst the small-ball banality of cloture vote after cloture vote, of compromise after compromise.

Greg Sargent:

Robert Gibbs, under fire for his attack on the “professional left,” sends over a statement walking it back, conceding it was “inartful,” and clarifying that the views he expressed frustration about are not widely held:

I watch too much cable, I admit. Day after day it gets frustrating. Yesterday I watched as someone called legislation to prevent teacher layoffs a bailout — but I know that’s not a view held by many, nor were the views I was frustrated about.

So what I may have said inartfully, let me say this way — since coming to office in January 2009, this White House and Congress have worked tirelessly to put our country back on the right path. Most importantly, to dig our way out of a huge recession and build an economy that makes America more competitive and our middle class more secure. Some are frustrated that the change we want hasn’t come fast enough for many Americans. That we all understand.

But in 17 months, we have seen Wall Street reform, historic health care reform, fair pay for women, a recovery act that pulled us back from a depression and got our economy moving again, record investments in clean energy that are creating jobs, student loan reforms so families can afford college, a weapons system canceled that the Pentagon didn’t want, reset our relationship with the world and negotiated a nuclear weapons treaty that gets us closer to a world without fear of these weapons, just to name a few. And at the end of this month, 90,000 troops will have left Iraq and our combat mission will come to an end.

Even so, we will continue to work each day on the promises and commitments that the President made traveling all over this country for two years and produce the change we know is possible.

In November, America will get to choose between going back to the failed policies that got us into this mess, or moving forward with the policies that are leading us out.

So we should all, me included, stop fighting each other and arguing about our differences on certain policies, and instead work together to make sure everyone knows what is at stake because we’ve come too far to turn back now.

Atrios:

Joking aside, I know Gibbs’ hissy fit didn’t happen because he stays up late at night petrified wondering who might be the next wanker of the day. But, generally, DC Dems hate The Left even when, as below, it’s The Left that’s spending time and money to exert the pressure to pass their stated agenda.

Digby:

What with all the hoopla over Robert Gibbs’ comments today it pays to simply remember that everyone in Washington hates liberals. It’s a fact of life and until something happens to change the dynamic in which Democratic politicians are afraid to even mutter the words liberal, much less boldly and persuasively make a case for liberalism, I expect this will be the case. (The irony, of course, is that the liberals who do so have been proven right on the politics and the substance far more often than those who bet with the conservatives.)

Kevin Drum says that Democrats do this because only 20% of the country identifies as liberal so they are making a play for the center. I think he’s right that they think this way, but one could easily make the case that they’d do better by demonizing the 30% that calls themselves conservatives instead of their own voters. The center, by definition, doesn’t identify with them any more than the liberals, right?

There is also a case to be made that the Democratic establishment should be concerned about enthusiasm — that the activist base needs to be handled with a little bit more respect because they are the ones who knock on doors and make the calls. There’s something to that, of course, particularly in the mid-terms which depend so heavily on getting the base out.

But what’s dangerously myopic about going ballistic as Gibbs did in his statements is that just 10 years ago we had a little event in which only a tiny portion of the base went with a third party bid from the left — and the consequences were catastrophic. Democrats, of all people, should remember that every vote matters.

It’s embarrassing to have David Frum point out the obvious — that the Republicans fear their base and the Democrats hate theirs, but it has been so since I was a kid — a long time ago. At some point they are going to realize that their demanding activist base is the way it is and that they need to figure out a way to deal with it rather than rail against it. You cannot browbeat people into loving you and you can’t argue them into being enthusiastic. Certainly characterizing them in cartoon terms by saying “they want to eliminate the Pentagon”, they are on drugs and — worst of all — suggesting they are not part of America — isn’t going to get you there.

On the other hand, if they just want to use them as doormat as a way to appeal to “the center” then they take their chances that their activists won’t turn out to volunteer — or worse. Sometimes all it takes to lose is a quixotic third party bid, 535 disputed votes in Florida and Antonin Scalia. Why would they ask for that kind of trouble?

Ezra Klein:

I understand why the White House is frustrated by the criticism from the “professional left” and feels progressives should focus on all the progressive things the administration has done rather than all the things it hasn’t been able to do or interested in doing. What I don’t understand is why Robert Gibbs would voice that frustration to the press. His comments just turn this into a “story,” giving the very professional lefties whose criticism is rankling the White House another high-profile opportunity to criticize the White House.

Baffling. Meanwhile, it’s worth noting that this is largely a Beltway phenomenon: According to Gallup, Obama is at 81 percent among self-described Democrats and 76 percent among self-described liberals. His problem is that he’s at 38 percent among self-described independents and 55 percent among self-described moderates. Now, this might tell you less than meets the eye: Maybe independents would like Obama better if he’d followed the professional left’s advice and really hammered the banks or sped up the withdrawal from Afghanistan.

UPDATE: Sam Stein at The Huffington Post

Paul Krugman

Brad DeLong

Jordan Fabian at The Hill

Naked Capitalism

UPDATE #2: Jane Hamsher and Matt Welch at Bloggingheads

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Filed under Political Figures

The Rich Are Deadbeats, Just Like Us!

David Streitfeld in NYT:

No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

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.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

Calculated Risk:

  • Were these borrowers really “rich”? Or did they just buy more home than they could really afford?
  • The “movin’ on up” theme for distressed properties is something we’ve been discussing for some time. We’re all subprime now!
  • Obviously more distressed sales will put downward pressure on prices in these areas.
  • Atrios:

    It’s a bit hard to comprehend that this housing/foreclosure crisis stuff has been going on for…fucking years already. As is so often the case, the maintstream media got it completely wrong initially, painting it as a “subprime” crisis due to bad behavior by unworthy brown people.

    Naked Capitalism:

    One has to be cautious in invoking cultural stereotypes. However, when the subject of defaults or mortgage mods comes up here and in other forums, almost inevitably some readers will start off on a bit of a rant: “I pay my mortgage/rent, why should these people get a break?” And these discussions often take a personal tone, as in they resent neighbors getting a break, or they claim to know someone who went hog wild spending on their home ATM and have now had their comeuppance (having never met anyone like that, I cannot verify if this pattern is anywhere near as prevalent as it is alleged to be). The problem is that their willingness to see their neighbors suffer, when it really is their neighbors, is cutting off their nose to spite their face, since foreclosures, particularly when homes sit vacant, drag all property values nearby down.

    The perverse part is a New York Times article today indicates that the affluent are far less burdened by consideration of morality in their financial decisions, including their mortgages: “’The rich are different: they are more ruthless,’ said Sam Khater, CoreLogic’s senior economist.”

    Default rates are highest among plus million dollar properties. The problem with the NYT account is that it discussion of defaults at the high end mixes apples and oranges. Defaults on second homes are mingled with defaults on primary residences. Second homes are the first to go when financial stresses become acute. And because a lot of borrowers claimed that vacation digs were primary residences to borrow on better terms, there isn’t an easy and obvious way to construct clean data sets (as in defaults on primary residences by income level or home price v. those on second homes).

    Tom Maguire:

    First, are we talking about “the rich”, or just people who live in areas with expensive real estate?  For anyone not from this continent (perhaps including the Times reporter), similar homes vary widely in price across the nation, as this CNN survey reminds us:

    This [2009 Coldwell Banker Home Price Comparison] index, released Wednesday, is an “apples-to-apples” comparison of similar homes in so-called “move-up buyer” neighborhoods. It compares the prices charged for 2,200-square-foot, four-bedroom, two-and-one-half bath, single-family homes in more than 300 markets around the nation.

    The overall U.S. average for such a house is $363,401, but in Grayling [MI], it sells for just $112,675, the most affordable market in the nation.

    La Jolla [CA], on the other hand, is the most expensive; a comparable house there goes for a cool $2.125 million. That more than $2 million disparity is up from 2004, when the spread between the most expensive and most affordable towns was $1.5 million.

    So – is this CoreLogic study making any adjustments for owner income and average local prices?  Can we safely conclude that “rich” Californians in million dollar homes are defaulting more frequently than admirable proles in their modest $100,000 homes in the heartland?

    Or (dare we ask) is it possible that the biggest mortgages are more likely to be found in the areas that saw the biggest bubble in real estate prices and have subsequently seen the greatest declines?  If Core Logic is not controlling for regional variations in price than we aren’t really looking at “rich” versus “the rest of us”; we are looking at an inconclusive mix of rich v. poor and bubble areas v. rationally non-exuberant areas.  Per this Housing Tracker data, a million dollar home in San Jose is at the 75th percentile of listed homes; in Cleveland, the 75th percentile value is $229,000 and a million dollar home (let alone mortgage) is off the charts.

    And how old are these defaulting mortgages?  Imagine Sally buys a modest California home for $800,000 in 2004.  Harry, with a similar income to Sally, buys an identical house next door a few years later for $1.2 million, with a $1 million mortgage.  A few years later, both houses are worth $750,000.

    Harry defaults, making him rich and a ruthless scoundrel; Sally continues to make her payments, making her a stalwart and a princess of virtue (whose mortgage is also above water.)

    Has Core Logic adjusted for any of the likely timing effects of the bubble?  Only the Times reporter knows for sure.

    Finally, dare we ask for a baseline?  The Times presents charts stretching all the way back to 2005, from which we learn that defaults were few when prices were rising.  Thanks for sharing.  How did larger mortgages look versus smaller mortgages back in the real estate swoon of the early 90’s, hmm?

    The Times could make a start by putting the study online.

    LEST I FORGET:  There may also be an institutional quirk to consider.  Anecdotally, I know a chap with a balloon mortgage coming due soon enough that the market will never recover in time.  He can keep current on the payments, but will never be able to refinance at current prices, and doesn’t have the cash to bring his equity up to the new lending standard.  He would like to negotiate an extension with the bank to defer the day of reckoning, but they won’t even talk to him until he is in default.  So, any day now he is going to start missing payments just to get their attention.  It all sounds dumb, but that may well be going on elsewhere.

    Felix Salmon:

    Streitfeld’s piece is bylined Los Altos, California, a town where the median home is $1.5 million. In such towns, you don’t need to be a millionaire to find yourself in a multi-million-dollar home. Let’s say you’re a tech geek who found yourself with $200,000 for a downpayment on a house over the course of the dot-com bubble. So you buy a million-dollar home, and then start up a series of companies. You need to live, of course, and you can’t afford to pay yourself a salary, so you do two or three cash-out refinancings on a home which by 2007 was worth $2.5 million. Before you know it, you’ve got a $2 million mortgage, no way of paying it, and a home which is worth significantly less than the mortgage. Realistically, you have no choice but to default.

    Even after accounting for your initial $200,000 downpayment and a series of mortgage-interest payments along the way, you still took out of the house much more money than you put in: the cost of living there over the past 10 years has probably been negative to the tune of well over half a million dollars. Essentially, the house has paid you $50,000 a year — money which is easy to spend, and is now long gone.

    In any event, these were jumbo mortgages when they were taken out, and they’re jumbo mortgages now — none of this has anything to do with Fannie or Freddie, except insofar as the homeowning majority of the population might yet wake up and, emulating the rich, default on their underwater homes. And so the GSEs are desperately, and unconvincingly, trying to persuade them not to do so:

    Knowing the costs and factoring in the time horizon, some borrowers have made the calculation that it is better to purposely default on the mortgage. While I understand how that might well be a good decision for certain borrowers, that doesn’t make it good social policy. That’s because strategic defaults affect many other families and communities. And these costs – or as they are known in economic jargon, externalities – are not factored into the individual borrower’s calculations.

    Well, sure, it’s not good social policy to strategically default. Fine. That doesn’t stop the rich, and it shouldn’t stop the rest of us either. I think it’s pretty clear which direction we’re headed in, and moralistic exhortations aren’t going to turn the tide.

    Megan McArdle:

    “CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.”

    This is just nonsense.  The CoreLogic data tell you how many people are in default.  They do not tell you how concerned those people are about the civic good, nor what may or may not be worrying them in those 3 am moments when they contemplate the wreckage of their housing dreams.

    We don’t even know that these people have more resources to draw upon, as Mr Khater implies.  All the data I’ve seen show that millionaires–aka “high net worth individuals” are not particularly likely to live in million dollar homes.  Who are?  People who live in areas with expensive real estate.  And where is the expensive real estate?  Why, often in the areas that experienced the biggest inflation during the housing bubble.

    Those are places where homeowners are much more likely than the national average to owe more than the house is worth.  And being underwater on your mortgage is very highly correlated with default–much more tightly correlated than the local unemployment rate.

    This has often been advanced as evidence that strategic default is popular, but I’ve seen no compelling data backing up this conclusion.  There are other reasons that being underwater makes you more likely to default.  For one thing, it makes it quite likely that you took out a loan in the bubbliest years, when bankers were allowing eagerly encouraging people to take on too much debt relative to their income.  For another, it means that if you need to relocate, get divorced, or have some sort of an income shock, you can’t take the otherwise obvious step of selling the house.  From what I’m hearing, most banks won’t even consider a short sale until you’ve already missed some payments.

    Shouldn’t people with million dollar homes have more resources to fall back on?  Absolutely.  The best you can say about people in that situation is that they were probably living beyond their means well before things got to this point.  But the bubbly areas–especially California–were characterized by a grim competition in which the houses in the good school districts went to the people who were most willing to overstretch themselves.  Those people didn’t build up a big reserve of savings that might allow them to meet the mortgage payments while they find a new job, because they were pouring everthing into securing the best possible education for their children.

    And in some ways, people with those jumbo mortgages are less able to adjust in crisis.  If your mortgage payment is $1000 a month, shaving $200 off a $700 monthly grocery bill and quitting smoking probably gets you close to halfway towards keeping the mortgage current.  If your mortgage is $10,000 a month, and one spouse loses their job, no manipulation of other basic expenses will help much.

    I’m still more sympathetic to anyone with a $1,000 mortgage who loses the house, of course.  And I still think it’s more likely than not that the wealthy are leading whatever trend their may be in strategic defaults.  But that’s just a hunch, because, like the New York Times, I don’t have any data to back up that belief.

    Ross Douthat in NYT:

    The rich are different from you and me. They know how to game the system.

    That’s one interpretation, at least, of last week’s news that Americans with million-dollar mortgages are defaulting at almost twice the rate of the typical homeowner. It suggests an infuriating scenario in which the average American slaves away to keep Wells Fargo or Bank of America off his back, while fat cats and high fliers cut their losses and sail off to the next investment opportunity.

    That isn’t exactly what’s happening, most likely. Just because you have a million-dollar mortgage doesn’t make you a millionaire, and a lot of the fat-cat defaulters probably aren’t that fat anymore. Chances are they’re more like Teresa and Joe Giudice from “The Real Housewives of New Jersey,” tacky reality-TV climbers who recently filed for bankruptcy after their decadent lifestyle turned out to be a debt-enabled fantasy.

    Still, watching the Giudices sashay through their onyx-encrusted mansion, and knowing that thousands of similarly profligate homeowners are simply walking away from their debts, it’s easy to succumb to a little class-warrior fantasizing. (Pitchforks, tar, feathers … that sort of thing.)

    The trick is to channel those impulses in a constructive direction. The left-wing instinct, when faced with high-rolling irresponsibility, is usually to call for tax increases on the rich. But the problem, here and elsewhere, isn’t exactly that we tax high rollers’ incomes too lightly. It’s that we subsidize their irresponsibility too heavily — underwriting their bad bets and bailing out their follies. The class warfare we need is a conservative class warfare, which would force the million-dollar defaulters to pay their own way from here on out.

    Consider the spread that the Giudices currently occupy (pending potential foreclosure proceedings, of course). The first million of its reported $1.7 million price tag is presumably covered by the federal mortgage-interest tax deduction. Intended to boost middle-class homebuyers, this deduction has gradually turned into a huge tax break for the affluent, with most of the benefits flowing to homeowners with cash income over $100,000. In much of the country, it’s a McMansion subsidy, whose costs to the federal Treasury are covered by the tax dollars of Americans who either rent or own more modest homes.

    This policy is typical of the way the federal government does business. In case after case, Washington’s web of subsidies and tax breaks effectively takes money from the middle class and hands it out to speculators and have-mores. We subsidize drug companies, oil companies, agribusinesses disguised as “family farms” and “clean energy” firms that aren’t energy-efficient at all. We give tax breaks to immensely profitable corporations that don’t need the money and boondoggles that wouldn’t exist without government favoritism.

    James Joyner on Douthat:

    He’s right, of course.  None of these policies make sense when looked at in terms of societal cost-benefit analysis.

    Of course, that’s not how these things get into the tax code.  They’re either sops to lobbyists who simply care more about the issue than those who pay for the subsidies or, in many cases, an unintended consequence of buying the votes of the middle class with tax dollars only to see the benefits going to those who don’t need them.

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