Posted tagged ‘housing’

You Don’t Need A Weatherman…

October 13, 2011

…to tell which which way the wind blows.  Not when even Marty Feldstein marches in with a more aggressive mortgage forgiveness plan than we’ve seen out of either Congress or the administration.

I don’t love the plan as offered, to the extent that an 800 word op-ed. offers much in the way of a fine-grained proposal.  Feldstein, Ronald Reagan’s head of the Council of Economic Advisors, calls for forgiving out-of-the-money mortgages down to 110% of the homes’ value — a threshold that would touch 11 million out of the 15 million  homes in the United States.  Lenders would absorb half the loss and the government would cover the other half, at a cost Feldstein asserts would be less than $350 billion.

I don’t have much to say about that part of the plan.  Why 110%?  Is there any data that suggests that’s the number to encourage underwater mortgagees to stick with the loan?

Or…how much of the current foreclosure crisis is driven by unemployment, and hence at this moment is unlikely to be touched by a payment reduction that still leaves the house underwater?

No clue, here (and no expertise to justify a guess), but these are empirical questions that could be answered…and in any event Feldstein — now at Harvard — is at least trying to come to grips with that insane number of 15 million houses that embody enormous financial loss.

The part of the this proposal that I think is almost certainly a bad deal is the price homeowners would pay to get their mortgage reduction:  Feldstein would transform these loans from non-recourse status —  in which the lender can claim the collateral, the house, but no other assets if the borrower defaults — into an instrument that puts all the borrowers assets are at risk.  To me, taking financially vulnerable people in the midst of  a bad economy and placing them at still greater economic risk seems to me both cruel and stupid.

Much better, in my view, are the proposals that place the government — the taxpayer, you and me, baby — into financial partnership with both the borrower and lender.  In these approaches, the borrower who gets mortgage relief has to share with the lender (and/or the Feds) any gain made from an ultimate sale of the property.  Everybody’s incentives align, and the borrower is not one layoff away from utter ruin, as he or she would be in the Feldstein scheme.

But what really stood out for me is not that Feldstein has come up with the least middle-class-friendly version of mortgage relief out there — that’s how he rolls — but that even such an old Reagan hand has driven to the core of the matter:

…As costly as it will be to permanently write down mortgages, it will be even costlier to do nothing and run the risk of another recession.

Yup, Dorothy, we’re not in Kansas anymore — or perhaps, pace  Thomas Frank, even in Kansas they’ve starting to grasp the most brutish of brute fact.

Yes, it sucks that the taxpayer must bail out over-extended borrowers and the reckless (criminal) financial institutions that placed those loans.  But life does blow sometimes — as most actual grown-ups understand.  Increasingly, those able to recognize the difference between ought and is accept that it’s better to deal with that fact than to watch the entire fiscal structure of our economy swirl down the toilet of whinging infant Congressional Republican orthodoxy.

Feldstein concludes by restating that same message.  Better the nation take its medicine than seek to extract the pleasure of righteousness amidst the rubble:

I cannot agree with those who say we should just let house prices continue to fall until they stop by themselves. Although some forest fires are allowed to burn out naturally, no one lets those fires continue to burn when they threaten residential neighborhoods. The fall in house prices is not just a decline in wealth but a decline that depresses consumer spending, making the economy weaker and the loss of jobs much greater. We all have a stake in preventing that.

That’s DFH talk, of course.  Without quite saying it out loud Feldstein here offers the suggestion that society has both values and obligations that trump the every-man-a-wolf-to-his-fellow-man cult of the individual that passes for  contemporary GOP “thought” on the social compact.

When you’ve lost Marty…

Image:  John Constable, The Hay Wain, 1821

Why is it so hard…

April 14, 2008

OK. I’m sitting at home, alternating cups of tea with doubleshots of tylenol or ibuprophen, trying to avoid unnecessary agitation, and I foolishly click on Marc Ambinder’s “reported blog on politics.” In a post that is otherwise informative about the battle between the pragmatists and the economic crazies* in his campaign, Ambinder writes that

McCain did not change his position, [about government responses to the housing crisis ] he certainly changed his tone, so much so that a a comparison of the two speeches, side by side, is bound to produce some whiplash.

Not something to read while nursing a headache.

John McCain has certainly said his position is unchanged — that’s an important part of his straight talk brand, and one can imagine he would be unwilling to admit to a little political expediency. But why is it so hard for the political press to go past what McCain says and ask if it actually makes sense, if the claim is true? Because clearly, in this case it is not.

What follows is the comment I helpfully posted to Marc’s site, but it all comes dowm, as so often these days, to echo Brad DeLong’s repeated plaint. Why, oh why, can’t we have a better press corps?**

So, to my kvetch at Ambinder:

I’m sorry, but I’m not sure that “position” means what you think it means. (h/t Inigo Montoya). In March, McCain says clearly no government assistance except to prevent (sic) systematic risk to the banking system. I do not think that there is any reasonable interpretation of that statement except that McCain opposes aid to individuals caught up in the banking crisis. Bank liquidity yes, homeowner…not so much.

Then in April: “priority number one is to keep well meaning, deservign home owners who are facing foreclosure in their homes.” Clearly this implies a shift of policy intention. Now its not systematic risk that is most important, but helping “deserving” home owners.

The impression is strengthened — or rather, the fact of a politically expedient (necessary?) flip flop is confirmed — by the fact that McCain actually offered a kind of a program to help out the “deserving.” Scare quotes abound because his program is the least one can do and get an unobservant press corps to report it as real. Define “deserving” narrowly enough and it turns out you don’t have to do all that much — but it sounds sort of good till the details emerge. But still, this is a distinctly different approach than the one McCain proposed a couple of weeks before.

Now John McCain swears he hasn’t changed his position, and I’m even willing to believe that he believes that. McCain may well have convinced himself that everything he says is true, even if it is different from what he said yesterday. But that doesn’t mean the press, even or especially the authors of “reported blogs” need to share that delusion.

McCain is not your friend, Marc. He’s your subject. Treat him accordingly.

Now it may reasonably be asked that while this is obviously a matter for the public square, what has it to do with science.  The answer is not much…but a little.  Habits of mind again.  One of the critical aspects of training in science is to discipline oneself to see as much as possible what is actually there.  This is very hard to do — I’ll blog another day about a not-that-well-known case of Albert Einstein falling victim to loving the story more than he should, to the destruction of his ability to read the experimental data correctly.  But it’s an acute problem for journalists.  Once a certain story gets entrained — John McCain is a straight talker, sometimes wrong, but never duplicitous, for example — contrary data gets written out.

This is an occupational hazard of especially beat reporting.  You stay with an institution or a person too long, and you get caught up in the agreed world view.  To take a sufficiently distant and non-partisan problem:  in the wake of the Challenger disaster in 1986, The New York Times won a Pulitzer Prize for its dissection of the tragedy.  The team of reporters that shared the prize did not include the usual suspects among the Grey Lady’s space and NASA beat journalists.  They had so completely become entrained in NASA’s self delusions about its engineering culture and cult of safety that they had missed what in hindsight seemed like obvious signs of deterioration in the management of the program.  Instead, the team included people from the business pages and elsewhere — folks who had no stake in NASA, no personal identification with the mission and so on.

Compare that with modern political reporting.  The inmates are confined together in small spaces for months on end.  The messaging is relentless, and the pressure to fit the story to the storyline is overwhelming.  If I were king of the world, I would mandate short tours for every campaign journalist — no more than two weeks, at most a month, with any candidate; enforced background pieces; and a “but is it true” paragraph required no later than graf four of any piece.  Dream on.

But the larger point is that John McCain’s narrative is based on the assumption that his description of himself is true.  The question any scientist worth his/her salt asks when confronted with assumptions not in evidence is “but is it true?”  In legend, and occasionally in fact, that used to be the default question for any half-decent reporter too.  No longer.

*It remains an ongoing mystery why Phil Gramm is so breathlessly viewed as a deep economic thinker by the political press. He could carry water pretty well — see this episode for details — but as far as I can tell he’s a poster child for the truism that half of all economists are below average. If this is the best McCain can do for advice, we could all be in even worse trouble than we think.

**I chose the DeLong link I did above because it directly references the mortgage crisis. But for sheer howling, it-would-be-funny-if-it-weren’t-so-painful mortification, read this.

(By the way, did I say how pissed I am at DeLong? He manages to put up one or more long, thoughtful posts per day while enjoying all the leisure customarily granted to teaching-and-researching types. Makes the rest of us (a mere cold slows me down!) look bad.)

Image:  Enrico Mazzanati, “Pinocchio” 1883.  Source, Wikimedia Commons

Why Can’t Republicans (and Harvard Economists) Count? Housing edition

March 8, 2008

I’ve focused a lot on the importance in thinking in numbers in a variety of blog posts.  (This one is my personal favorite). As I’ve done so, I’ve emphasized that this kind of thinking is one of two real pillars of scientific thinking. (The other one is empiricism — actually going out and in ways you can check getting information about the real world.)

The larger point I keep sniffing around is the notion that this is what a real definition of science literacy means: it’s not what facts you know (or think you know — see this post for a gory view of truthiness in science). Rather — its how you approach facts as you learn them, what sense you or I make of our experience that counts.

Counts — there’s the word again. Apparently uber-economist Martin Feldman, late of Ronald Reagan’s administration and now professing to unsuspecting Harvard undergraduates, doesn’t do that so good. He’s got a nifty proposal to address the mortgage crisis in America — a massively complex scheme of government intervention and subsidy (waittaminute — ain’t that for Atrios’s DFHs?) that will, in the end, in the real world, add up to…

Bupkis. Tanta over at Calculated Risk has run the numbers. Putting the absolute best possible framework around Feldman’s idea (he wants the feds offer a 15-year second mortgage loan at a highly subsidized rate, with a number of restrictions, to cover 20% of existing mortgages), Tanta works out what all the details actually mean.

You can mess about a bit with the assumptions in the examples worked out there, but the bottom line remains the same. The sucker don’t work. Plausibly, it will increase monthly payments for many borrowers (total interest will go down; but the real-world economic crisis derives from the fact that folks can’t pay what they owe now, not fifteen years down the road). One case study ends up with a home owner forced to buy 12 fewer lattes per year … which, as Tanta notes, hardly advances the cause of economic stimulus.

Not to spill two many bytes on this — after all, this is a proposal so dumb it has nowhere to go, despite the bar being set pretty low on stupid over the last several years — but why is this so hard to figure out?  Feldman can in fact do his sums — I’m sure.  Why not actually run a few tests against his hypothesis (subsidizing a fraction of mortgage interest costs will make a difference to the economy — yes or no?) and quietly trashcan the idea himself, without wasting time the rest of us could use …say … meeting the book deadline whose breath I feel hot against my neck.

Count, man! Count.  (You’ll still respect yourself in the morning.)

(h/t Atrios)