New York Times Laments That Banks Operate in Their Own Self Interest

Tim Cavanaugh had a great post last night about the long real estate collapse, in which he concluded:

The best way to bring back the house-happy America of yore would be to let prices fall to market-clearing levels, without benefit of any HAMPS or TARPs, Fannies or Freddies. Now more than ever, this is a heretical notion.

To see how heretical this really is, look no further than this New York Times editorial Wednesday inaccurately headlined "As Housing Goes, So Goes the Economy":

The Great Recession began with the bursting of the housing bubble. Today, nearly two years after the recession officially ended, the housing market is still in trouble. [...]

Even a recent drop in foreclosure filings isn't a reason for optimism. April was the seventh straight decline in monthly filings — which include notices of default, auction and bank repossessions — according to RealtyTrac, a real estate data provider. But the decline appears to be largely the result of banks slowing the foreclosure process in order to keep properties off the market until prices recover. The catch is that prices are unlikely to recover as long as millions of foreclosures are imminent.

Wait, so they're acknowledging that artificially delaying foreclosures through government action is postponing much-needed market clearance? Ha ha, yeah right:

Since the problems in housing are not self-curing, a government fix is in order. But the Obama administration's main antiforeclosure effort has fallen far short of its goal to modify three million to four million troubled loans.

Its basic flaw is that participation by the banks is voluntary. [...]

That does not have to be the end of the story. In a recent hearing in a Senate banking subcommittee, witnesses proposed new laws and regulations to change loan-servicing standards in ways that would prevent banks from putting their interests above those of everyone else.

For starters, various government guidelines on loan servicing would be replaced with tough national standards. Among the new rules, homeowners would be evaluated for loan modifications before any foreclosure — or foreclosure-related fee — is initiated. The bank analysis used to approve or reject modifications would be standardized and public, and failure by the bank to offer a modification when the analysis indicates one is warranted would be grounds for blocking any attempt to foreclose.

National servicing standards could succeed where antiforeclosure programs have failed, namely, in compelling banks to help clean up the mess they did so much to create.

If only you could just eliminate banks, maybe you wouldn't have this problem!

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  • Almanian||

    Since the problems in housing are not self-curing, a government fix is in order.

    GAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAUUUUUGGHHH FUCKFUCKFUCK!!!

    FUCK! I can't take it any more!

    *runs away with hair on fire*

  • Almanian||

    Also - FIRST! HAHAHAHAHAHAHAHAHA!

    *back to running away with hair on fire*

  • ||

    I would have been first but I collapsed on the ground puking when I read that line.

  • rts||

    That sentence, applied in various contexts and situations, neatly encapsulates statist thinking. Note especially the complete lack of evidence or reason for the antecedent.

  • ||

    "Since the problems in housing were created, perpetuated, and made untenable by government intervention in the market, more government intervention is required to prevent market forces from correcting the situation."

    There... a nice palate-cleanser for you all.

  • Tman||

    The bank analysis used to approve or reject modifications would be standardized and public, and failure by the bank to offer a modification when the analysis indicates one is warranted would be grounds for blocking any attempt to foreclose.

    No matter how many times I read this I still just can't fathom how someone could write this with a straight face.

    It's like saying if I stopped paying my car note the government would have to make sure that I really really couldn't afford the payment before letting the bank repo the car. Meanwhile I'm still driving around in the car running over things and losing value in the car itself. By the time the bank gets it it won't be worth the tires it's sitting on.

    And they wonder why the economy is still in the shitter.

    Just how stupid are these people?

  • WTF||

    Just how stupid are these people?

    How high is up?

  • Markos Moulitsas||

    "BANKSTERS!!!!11!"

  • ||

    Come On Feel the Illinoise

  • sven||

    People are entitled to their houses! The banks duped the American people with mortgage contracts filled with incomprehensible legalese like "interest" and "principal!" Now they want to take back my HOME? Where I LIVE? And don't PAY to do so?

    How un-American!

  • ||

    I think the disconnect is more basic.

    People think Wall Street is to blame for what our politicians did. It's a misconception our presidents, Congress and their cheerleaders have encouraged.

  • ||

    The condensed version of what I wrote yesterday: the problem with the housing market is really a problem with financing.

    We're continuously hobbling Wall Street, which is the creative destruction machine that solves problems like our housing problems.

    If you don't want the government in the mortgage business (and inadvertently affecting any one of a dozen other financial markets) AND you don't want Wall Street involved either?! Then who the hell else is there to take on the necessary risks and clear that market?

    Creative destruction by way of finance is the name of what Wall Street does. Right now they're in an MMA fight with both hands tied behind their backs. It's so time to cut them loose.

  • ||

    I think the author of that peice has just demonstrated that it is possible to bridge gaps in the multiverse in order to tap extra-dimensional stoopid. Clearly, our own universe was insufficient to meet that demand.

    This is a moment in quantum physics that will be remembered for centuries to come.

  • Sudden||

    Scott Bakula must be the NYT Editor then, because it seems like they make a quantum leap on a daily basis.

  • ||

    Does anybody else here understand what this guy wrote?

    "This is a moment in quantum physics that will be remembered for centuries to come."

    That sounds crazier than somebody yelling, "Thank you for the freak show!" in court.

  • ||

    It's a reference to how quantum computing would work under the Everett-Wheeler Model.

  • ||

    I thought he was talking about Matt.

  • ||

    Schrödinger's Columnist.

  • ||

    Matt keeps running away with the ether.

  • ||

    You can either know what Matt is writing about or where he is writing it.

  • ||

    Matt is simultaneously writing and not writing.

    For you, Sug, just substitute 'masturbating' for 'writing.'

  • ||

    [nng] What? You say somethin'?

  • ||

    Seriously, though, have you ever actually tried shutting a cat up in a box? Not as easy as Schrodinger would have you believe; those fuckers scratch. I remain highly suspect of any scientific theory that requires one to accept that particular scenario.

  • Sparky||

    Hell if I leave an empty box on the floor I find my cat sitting in it within minutes, even if it's too small for him. And he always starts nosing around the poison vial before I even finish hooking it up.

  • Fiscal Meth||

    The amount of stupid that is known to exist far surpasses the amount that can be explained by physicists so they have developed a theoretical substance called "dark stoopid"

  • ||

    I am just a simple microbiologist - your modern world of reserve requirements and Basel version 3.16 confuses and frightens me.

    Now, some might say, "What happens when everyone has a ginormous loan for a house, the bubble BURSTS, and we run out of *NEWSUCKERS? Isn't that really what caused the collapse???
    YES!!! Thats why we need NEWSUCKERS! To get our housing market back!!!!
    Oh people of little vision, we could certainly let everyone on the planet get a loan for a house in the USA. We had a strawberry picker with an annual income of 14K buy a house for 750K, with our innovative adjustable rate mortgages available here in CA with our innovative and honorable company, Country Wide. What with the coming negative interest rates, I fully expect a Chinese agricultural worker with an income of 2K (purchasing power equivalence) to be able to buy all the real estate in Las Vegas soon. Second, why stop lending at one house per family? Have 2 , 3 or 9 or 10!

    Why did we have the crash? We stopped making loans to new suckers, that's why! People and their sustainability - in the long run, we're all unsustainable!
    Debt is wealth, and borrowing is income.

    *Novel economic work stimulas utility cumulation* kabuki expansion recovery statute
    BTW, MerriamWebster tells me "cumulation" is a perfectly cromulent word

  • ||

    Is there a statist template that editorial writers use to meet deadlines?

    Since the problems in _______ are not self-curing, a government fix is in order. Its basic flaw is that participation by the _______ is voluntary. For starters, various government guidelines on _______ would be replaced with tough national standards. National ________ standards could succeed where ________ programs have failed. The new _______ Bureau can also impose servicing rules. The _______ administration should champion national standards, and Congress and regulators should act — soon.

  • Fiscal Meth||

    Wow! I guess you beat me to it.

  • EDG reppin' LBC||

    "Since the problems in housing are not self-curing..." Actually, the problems are self-curing. See, the homeowner who can not continue to pay his mortgage loses title to the bank in foreclosure. Then, the bank puts the home on the market and a new buyer purchases the home. Granted, the new purchase price may be dramatically lower than the original price of the foreclosed home, but those are the vagaries of owning any asset.

  • EDG reppin' LBC||

    Also, I am a California real estate agent and I just completed my BS in Finance. So... I pretty much am an expert...

  • Fiscal Meth||

    "Since the problems in ____1___ are not self-curing, a government fix is in order. But the ___2____ administration's main anti-____3____ effort has fallen far short of its goal to ____4_______.

    Its basic flaw is that participation by ____5____ is voluntary."

    Writing a NY Times article can be fun! Just fill in the blanks and wait for your Pulitzer.

    1:the economy
    2:Roosevelt
    3:poverty
    4:provide basic necessities for all
    5:young workers

    Now you try!!

  • ||

    I need to get a copyright on that template.

  • ||

    1. Cancer Treatment
    2. Palin
    3. Cancer
    4. Cure Cancer
    5. Cancer

    It's so simple! We just need to make cancer illegal!

  • ||

    Fuck the Pulitzers, what I care about is why the NYT editorial staff is hoarding all the good drugs. Sure, when it comes to banks they're all about sharing the wealth, but just try getting your hands on some of the shit they're smoking.

    Fucking hypocrites.

  • ||

    I did a 12 year stint as a banker, so I am somewhat familiar with lending practices.

    The three C's of lending are 1) Capacity - can the borrower pay, 2) Character - will the borrower pay, and 3) Collateral - what's my backup if 1 & 2 fail.

    Of the three Character is by far the most important. I have seen people keep up with payments when they are living on bread and beans (the provebial dog food is too expensive). I have also seen people default because it is more important to party every Friday night. Critical warning signs at the time that someone applies for a loan are falsification of information or frequent missed payments. [Numerous R-2, I-2 or worse records on the credit report.)

    Government intervention in the market place invariably try to eliminate consideration of character.

    When you do that, a financial disaster is inevitable.

    ---

    WRT the foreclosures and the banks deferring action, the old collection adage "Your first loss is your best loss" applies. The longer you drag it out, the more it costs you in the long run. It also delays getting the money invested in something profitable.

  • ||

    It also sounds like they're trying to eliminate 1 & 3 as well.

    "What, you want the house back because they can't pay? Just like a banker."

    What could possibly go wrong?

  • PintofStout||

    in order to keep properties off the market until prices recover

    So, by recovering prices, they mean another bubble, right? Isn't the fact that prices were so high to begin with because of the bubble mean to recover we would need another bubble?

  • EDG reppin' LBC||

    Oh no. It won't be a bubble this time. Because this time, home prices will be based on increased employment, higher wages, supply scarcity, low interest rates, and a little bit of "natural" inflation for good measure.

  • ||

    >>home prices will be based on increased employment, higher wages, supply scarcity, low interest rates, and a little bit of "natural" inflation

    Or a shit-ton of the latter if all of the former do not materialize.

    But what are the chances of that, right?

  • ||

    Yup, that's it in a nutshell. As long as government policy is based on the fairytale belief that property possesses a magical correct value independent of what the market will bear, there's no escaping exaggerated boom and bust cycles. That and encouraging people to see their house as an investment that is guaranteed to increase in value over time, rather than simply a place to live which necessarily costs money that you may never see again. That shit's insidious, and unfortunately it's the a pervasive mindset; people seriously need to start viewing their houses more like they view their cars, money spent on an asset that depreciates in value over time. It would spare everyone a shitload of grief.

  • PintofStout||

    The reason I chose to purchase a house was to maybe get the investment back eventually, unlike renting. Not sure I would still agree with that sentiment.

  • ||

    Well, ideally you get your money back, and that's not a crazy expectation. The problem is people who believe that by signing the contract they were guaranteed that outcome as the worst case scenario. That belief is a big part of how people justify walking away from their obligation to pay-- they believe that somehow the loss of value has already invalidated their contract.

  • EDG reppin' LBC||

    Hey Pint, don't get bummed out. If you like where you live and you can make the payments, life is good.

  • ||

    witnesses proposed new laws and regulations to change loan-servicing standards in ways that would prevent banks from putting their interests above those of everyone else.

    Or, you could just not borrow more than you can afford to repay. That'll show those self-aggrandizing bastards.

  • Tncm||

    Couldn't you avoid the messiness and unintended consequences of monetary policy by just fixing the price of every house at their pre-bubble level? It's equally stupid, but at least then the effects would be more localized in the housing industry.

  • MJ||

    "For starters, various government guidelines on loan servicing would be replaced with tough national standards. Among the new rules, homeowners would be evaluated for loan modifications before any foreclosure — or foreclosure-related fee — is initiated. The bank analysis used to approve or reject modifications would be standardized and public, and failure by the bank to offer a modification when the analysis indicates one is warranted would be grounds for blocking any attempt to foreclose."

    A one size fits all policy for all the different housing market conditions is surely a recipe for disaster. Taking the decision and the basis for analysis out of the hands of the banks who are responsible for the loans. Banks want a steady flow of money from mortagage payment made on time. A foreclosure is a bad end for a bank, not desirable but better than nothing. The bank is the proper arbiter of what kind of relief they are willing to offer and under what circumstances. The federal government is too far removed from any indiddual situation to make a rational decision.

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