Monday, February 11, 2008

Capitalism Is Immoral, Not Amoral

If you believe the hype, profligate, lying homeowners are the ones to blame for the mortgage crisis, especially minority homeowners. People lied to get mortgages for homes that were unaffordable. They were greedy, taking advantage of loose credit requirements to buy houses that their incomes couldn't justify. Housing prices were exorbitantly inflated (a "bubble") premised on the idea that prices would never go down. People justified their borrowing by thinking (or saying, whatever) that they could constantly refinance for a larger mortgage to pay off the previous one. Then prices collapsed and their mortgages were more costly than any money they could borrow by refinancing. the party line spewing from Wall Street is that minority homeowners lied to steal money to buy homes they couldn't afford. Of course, conservatives parrot that line.

But according to The Wall Street article Speculators May Have Accelerated Housing Downturn, it was really speculators in the bubble defaulting on their homes who caused the problem:

Roughly 20% of mortgage fraud involved "occupancy fraud", or borrowers falsely claiming they intended to live in a property, according to an analysis by BasePoint Analytics, a provider of fraud-detection solutions in Carlsbad, California. Another study, by Fitch ratings, looked at 45 subprime loans that defaulted within the first 12 months even though the borrowers had good credit scores. In two-thirds of the cases, borrowers said they intended to live in the property but never moved in.

Some home builders have come to similar conclusions: They now believe that as many as one in four home buyers in some markets were investors during the boom, up from their earlier estimates of one in 10 buyers.

Investors tend to be more likely than borrowers who live in the homes to walk away from their purchases when home prices fall.


Lenders didn't do simple things such as check to see if a borrower listed different addresses than the locations of their homes:

Lenders typically allowed investors to finance no more than 90% of the home's value, but if borrowers said they planned to live in the property, they could buy a home with no money down, even if they had scuffed credit and didn't document their income, said Pete Ogilvie, a mortgage broker in Santa Cruz, CA, and president of the California Association of Mortgage Brokers.

While it is true that occupancy fraud can sometimes be difficult to detect, fraud experts said lenders and builders could have vetted their borrowers more closely. Pulling a borrower's credit report, for instance, may reveal multiple mortgages.


The exalted "free market" theory underlies the hands-off attitude of any regulatory agency toward the housing bubble that is now undermining some $2 trillion dollars in housing value. Defaults on mortgages have led to skittish investors avoiding debt instruments involving a mortgage-backed securities. This has led to a burgeoning credit crisis where investors are leery of many previously rock solid investments including municipal bonds, which has caused the price of borrowed money to rise significantly. The bundled (or structured) debt is going down, down, down in value. In some cases corporate bonds (what are they called, corporate leveraged obligations--man, what fucking euphemisms the "free market" uses to cover their fraud) have to marked down to 80 cents on the dollar, which is usually the sign of imminent default.

The brilliant Alan Greenspan, acolyte of Ayn Rand, who made credit easy and cheap by lowering the fed fund rate to negative cost during 2003-04 and derided fixed-rate mortgages in favor of adjustable rate mortgages, is a criminal. If you ask me, they are all criminals. But being a criminal never stopped anyone, including Michael Milken, Henry Blodget, or that guy who pretended to be a Rockefeller to make a lot of money on the lecture circuit. Jerome Kerviel, who is turning out to be a person who deliberately sought to rip off SoGen with accomplices as opposed to being a meek cog in the machinery, will probably also be sought out as a public speaker after he serves minimal time. Serving time in prison is merely the cost of doing business for these guys.

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