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Ben Stein: subprime borrowers profited from the mortgage mess

Sunday, November 11, 2007

If memory serves, Ben Stein, who appears to be a semi-Renaissance man, in that he is mediocre in a number of professions, opined that the credit crisis was no crisis at all. (I can’t find a link, as I write this the Times search server tells me that it is temporarily unavailable. In today’s Times he appears to recognize that we have a problem, but points out that there’s a silver lining: if so many people lost big money on these deals, it stands to reason that someone made money off those suckers, so in a way it all evens out. At least that appears to be what he’s saying.

He states:

Someone sold these debt instruments to these huge banks and investment banks. The someone might have been a borrower who was not qualified, or another player in the financial field like a hedge fund or a mortgage originator.
…

There are gainers somewhere, and it sure looks as if some home borrowers are in that group. Obviously, with hindsight, we can see that the lenders’ risk premium in fees and interest rates should have been even higher than it was.

I’m not a lawyer, writer, actor and economist, but I don’t need to be all those things to see that there’s something not quite right here. Stein appears to be saying that the borrowers made out like bandits because they were such poor risks that they should have paid even more for the loans in both interest rates and up front fees than they did. They got those mortgages cheap friends, and the fact that they bought a one way ticket to financial ruin is, apparently, totally beside the point. The borrowers are the only group of people that he specifically singles out as having profited from this mess, although he does, at least recognize that the banks may have bought the securities from someone else.

I’ll grant him that there were probably a lot of borrowers that should not have gotten loans, but it is a stretch to say that the typical subprime borrower has somehow bilked the banks who bought the securities peddled by the middlemen who got those borrowers to pay large upfront costs to get mortgages at high interest rates on which they were doomed to default on homes that would likely fall in value thus leaving them with nothing but foreclosed homes and a mountain of debt. They are not ahead of the game.

There are, of course, lots of people who are very much ahead of the game, including folks like Angelo Mosilo, http://www.nytimes.com/2007/11/11/business/11angelo.html?ref=business&pagewanted=print who Stein can read about in the very issue of the Times in which he suggests that it is mostly borrowers who soaked all that money from the banks. It was the folks who conned both borrowers and bankers who made all the money. They made real money, not hypothetical gains on real estate that was sure to keep rising in value, except for the unfortunate fact that it was impossible for that to happen. The corporations for which they worked may now be bankrupt, but the millions they took away while the con was running well have now, for the most part, been safely parked elsewhere, and it was all somewhat perfectly legal. In Mosilo’s case, Countrywide is still around, and he appears to believe he can save it, but he took almost $500 million out of it in the past few years, and he was selling stock big time in the months before it tanked. No matter what happens to Countrywide, he’ll be able to keep buying gold Rolls Royces.

Stein is a Republican, so he must be forgiven for his inability to see the obvious. Only a Republican could claim that the borrowers have gained from the subprime mess at the expense of the banks, while all but ignoring the folks who created and profited from this debacle, people who walked away with millions in cold, hard cash.

By the way, I recognize that it would not be impossible to get anecdotal evidence of borrowers who actually did well with a subprime mortgage. There are exceptions to every rule. Stein implies, without outright saying, that the exceptions are the rule.

Putting aside all that, how is it the case that a loss on one side implies a correlative gain on the other, at least as far as the borrowers and the holders of the securities are concerned? The securities are of little value because it is now clear that the real property that was security for that debt is not worth what everyone “thought” it was worth. The bank’s securities have decreased in value because the borrower’s real estate has decreased in value. Both sides are losers. It’s true that the borrowers got cash to buy those houses, but that cash went to the seller, and the borrowers can’t get it back unless and until home prices recover before they lose everything to foreclosure or bankruptcy. The winners in that picture (again, ignoring the middlemen) are the sellers of the houses, not the buyers, because the money went to them, and they get to keep it.

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Money for nothing

Saturday, November 10, 2007

Some observations in the last couple of days started me thinking about the many hidden taxes we pay-not to the state or federal government, but to the corporations.

After court in Willimantic yesterday, I went to the co-op, and, while I paid for my purchase with a credit (actually debit) card noticed a sign that notified the members that the co-op’s entire profit for the previous year was about $4,000.00, while the fees it paid to credit card companies exceeded $14,000.00. Well, I thought, they could soften the blow somewhat by getting the gizmos they would need to let people use their cards as debit cards. Not so, I found out just today, when we were at a store where a small merchant gives 10% discounts to those who pay in cash. He figured that was approximately his cost on each credit or debit transaction. While debit cards formerly cost the merchants less or nothing, they now cost pretty much the same as credit cards. Checks (as long as the don’t bounce) and cash cost them nothing.

The hidden tax comes in because, while the merchants pay these costs directly, they do, of course, pass them on. So the banks are raking in something like 6% of every transaction (this is on top of the interest they charge the customers) in which a credit card is used. Even if you don’t use credit cards you are still paying the price, since the price of goods is artificially inflated. If you believe that the fees that are charged reflect the actual costs of the transactions, you live in la-la land. It probably costs more to process checks. It’s only an historical anomaly that forces the banks to consider check processing charges as a cost of doing business or to at least confine the charges to a direct charge to their own customers, who can shop around for better rates in a somewhat competitive environment.

It would, of course, never enter the minds of the people’s representatives to take a look at these fees and see if they bear any relationship to actual costs. Nor, for that matter, would the government consider setting up a governmental debit card system to compete with the banks and keep them honest. After all, if there were any interest in preventing banks from imposing excessive fees, outrageously high ATM fees would be a thing of the past. There is no true competition in the credit card industry, at least with respect to the fees charged to merchants. Even if one card issuer were to charge the merchants lower fees each merchant would still, to survive, have to accept all major credit cards.

In related news, Joe Nocera of the New York Times reports on the NFL’s attempt to force cable companies to make its cable station (NFL Network) a basic cable station. The NFL wants to charge the cable companies 70 cents a subscriber, which means we would all end up paying about a dollar more a month so we could watch 6 real football games a year, with the balance of the programming consisting of total crap. It makes the YES Network look like a steal. The cable companies don’t want to do it, so the NFL is turning to friendly state legislators and the FCC to force it down their throats. One idea is to force them into “baseball arbitration”, a form of arbitration in which the arbitrator must pick one side’s figure and can not split the baby. In other words, the NFL would maintain that its service should be on basic cable for 70 cents a month, and the companies would be arguing that the NFL should be on basic cable for, say, 20 cents a month. The arbitrator would pick one of those figures. The idea that the NFL should not be on basic cable at all would be off the table. I.e., the NFL is asking the FCC to force each cable customer in the nation (except for us lucky ones not “served” by the giant companies) to buy its product, whether we want it or not. It’s not unlikely that our conservative dominated FCC will agree, since increasing taxes is bad, but forcing people to give their money to corporations (and letting the corporations decide how much they should pay) is good.

To me, there’s no functional distinction between corporate imposed charges we have no choice but to pay, and what we commonly call taxes. The only difference is that the taxes we must not raise go to pay for schools, roads, etc., and yes, alas, unnecessary wars. Corporate imposed taxes, of which we should be no means complain, go straight into the pockets of CEOs, who, of course, themselves are exempt from taxation due to the wonders of the tax code and the beneficence of the aforementioned legislators, acting, strangely enough, in bipartisan harmony.

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The truth on television

Saturday, November 10, 2007

Don’t be surprised if Keith Olbermann should disappear mysteriously.

[youtube]http://youtube.com/watch?v=arWJ358tZgU[/youtube]

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Joe votes against trade pact

Friday, November 9, 2007

Congratulations to Joe Courtney for voting against the trade pact with Peru. Joe made a mistake on the Moveon thing, but he’s been pretty solid on almost everything else. It’s pretty safe to conclude that you should be against anything the National Association of Manufacturers is for. Shouldn’t that be the National Association of Corporations that Manufacture Elsewhere?

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Test: Cite one post election example of successful Democratic resistance to Bush

Friday, November 9, 2007

A commenter at TPM makes a good point:

The issue on Mukasey in regards to the Dems is not (should not) just be about which disheartening AG runs our even more disheartening DOJ. It’s that once again the Dems got boxed in by something as simple as a questionable nomination with nothing to show for it.

These guys just seem functionally unable to think past their next move, or to strategize on the most basic political level. How weak does this president need to be for these hapless Dems to score some points? Less popular than Nixon at his lowest point seems to be the bar, and that says a lot about this leadership, but can be summed up in six words: uniquely ineffective in the modern era.

So far, if I’m not mistaken, overturning a water bill veto is the only effective thing Congress has done in opposition to George Bush since the Democrats took over. Typically, of all the things he’s done, that particular veto was probably the closest he’s come to being right about something since the election. I can’t think of a single thing other instance in which they haven’t folded after just the least bit of pressure from the worst and most unpopular president in American History.

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Sign of the Times

Friday, November 9, 2007

mgg1108.gif

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Getting ready to fool us twice

Thursday, November 8, 2007

Here we go again:

Iraq Déjà Vu: Cheney Pressuring Intel Analysts, Stifling Dissent, Manipulating Intelligence

Filed in Creeping Totalitarianism, Republican Corruption | | Comments (1)

The Courant concedes defeat, at least for now

Thursday, November 8, 2007

(Special to CT Blue)

Despite its best efforts, the Hartford Courant was forced to concede today that its campaign to instill irrational fear in the minds of Connecticut residents has been largely unsuccessful. According to the paper:

Connecticut residents are more likely to check their doors at night since the Cheshire slayings, but most have shunned dramatic measures like buying guns or installing security systems, a poll found.

According to a Quinnipiac University poll released Wednesday, 98 percent of voters are aware of the home invasion and gruesome triple homicide, and 27 percent say the crime made them feel less safe in their homes.

Fewer than 10 percent report buying new locks, security systems or dogs since the crime in late July. Only 3 percent say the crime prompted them to buy a gun.

Despite the universal awareness of the deaths of Jennifer Hawke-Petit and her two daughters, voters are divided on legislative proposals for new prisons and tough mandatory sentencing laws.

Only 35 percent say they favor a “three strikes” law that would impose a mandatory life sentence for a third violent felony.

While these numbers do indicate a high percentage of Connecticut residents favor irrational responses to isolated crimes, they do not approach levels high enough to justify calling the newspaper’s recent campaign a success. It appears that some people simply have an intuitive grasp of statistical probabilities, perhaps enhanced by the fact that they have become more familiar with computing odds, given the proximity of two of the world’s largest casinos. Apparently many people have figured out that the odds of being the victim of a “home invasion” has not grown appreciably, despite the fact that it has now happened once in the last 100 years or so. Similarly, many appear to have come to terms with the fact that criminals who serve their sentences are in fact returned to the community, even if that community happens to be a white upper class suburb.

The paper has pledged to redouble its efforts to instill fear in its readers. Its corporate publishers, along with the corporate owners of most of the local television stations in Connecticut, are not giving up. They insist that with a little more effort on their part, they can succeed in completely distracting the people of Connecticut from issues like health care, global warming, and the war in Iraq.

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Loose lips sink only liberal ships

Wednesday, November 7, 2007

It seems that MSNBC is thinking of hiring Rosie O’Donnell, and people are talking. Is MSNBC tilting leftward? Is someone out there finally going to serve the vast numbers of people who have no desire to feast on a one course meal of right wing red meat? But MSNBC has some strange concerns:

O’Donnell’s ”loose cannon” reputation, reinforced during her nine-month stint on ”The View,” apparently is a key stumbling block as the comedian-turned-TV talker negotiates with the network. Showcasing alternative political viewpoints to the conservative opinions espoused by Fox News has helped boost MSNBC’s recent ratings, ”but we still get nervous when we think about Rosie,” an MSNBC source told me Tuesday.

If this is true (the nervousness I mean) it seems strange. After all, when Ann Coulter suggests that various people or groups of people should be killed, or Glenn Beck suggests that a Muslim Congressman should be assumed to be a traitor, there is barely a ripple in the Force. And as we know, I barely skim the surface. Has Rosie ever suggested killing anyone? Surely MSNBC doesn’t fear that liberals are held to a different standard than the troglodytes?

I happen to believe that in this great country, we unwashed are just as tolerant of the right of liberals to tell the truth, albeit in rough and ready language, as we are of the right of the Neanderthals of the right (I know, that’s unfair to Neanderthals) to lie and spread hate. Actually, I think we’re probably more tolerant of the liberal brand of misbehavior, at least those of us who exist outside of the rarified atmosphere of the Beltway and media boardrooms. We don’t, for instance, pick on little kids.

If MSNBC truly is seeing the economic handwriting on the wall, and is going to try serving the unserved majority in this country, it will mark quite a turnaround. This is the network, after all, that took its top rated show (Phil Donahue) off the air because Phil dared to oppose the war in Iraq.

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Groton Dems win big-still the minority on the Town Council

Tuesday, November 6, 2007

This is what comes of a political environment in which it’s almost impossible to find people willing to run for office.

The Groton Democrats appear to have elected all of their candidates to the Town Council and all of their candidates for the Board of Education (one Board of Ed candidate is on the edge, pending absentee ballot counts). We also increased our majority on the RTM, from what I’m told.

We only ran four candidates for the Town Council, and they all won. Since there are nine seats on the council we’re still in the minority. Next time around, maybe we’ll go over the top. If there are any politically aware Groton folks reading this who would like to run for office, believe me we want to hear from you.

A lot of people did a lot of work on this election and deserve some recognition. Natalie Billing, Betsy Moukawsher, Nancy Driscoll, Liz Duarte, and Karen Buffkin were among the hardest working. I’m sure I’ve missed some, for which I apologize.

Two spending measures won (the seniors-only swimming pool lost), so the Groton voters, who don’t like to be taxed, still like to spend money. We are now going to have the world’s most luxurious dog pound. Go figure. Friend of the blog, though a Republican, John Scott, lost. Whether he was a victim of the GGG Pac campaign of vindictiveness, I don’t know.

I was poll checking from 6:00 to 9:00 AM at the library in the first district, and it seemed to me that turnout was low but biased toward Democrats. I couldn’t be sure, because the first should be a heavily Democratic district anyway, though it sometimes amazes me how many Republicans live in the poorer areas. Apparently there was such a trend: Democrats turned out disproportionately, or maybe Republicans stayed home disproportionately. We can only hope that trend goes national in 2008.

Though I have my differences with some of our candidates, I decided this year that I’d vote for them all.

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