Realism About the Housing Mess

cross-posted at Dagblog

Most public debates over the mortgage and housing mess have been running aground on the false-dilemma problem, framing a problem with several possible solutions as a choice between only two options. At least one of the options in false dilemmas is always completely moonbat crazy, and frequently they both are. The false dilemma I've been hearing these days goes like this:

"We either have to give mortgage lenders a free hand, and forget about the legal details, or just let borrowers keep their houses for free without paying anything!"

Obviously, this is not the actual set of choices. It's the two most extreme choices within that set. The point of this either/or formulation is to make one unreasonable course of action seem sane and necessary by pairing it with an even crazier course of action. Letting banks foreclose on people's homes with forged documents is so clearly insane (and such an attack on basic property rights) that it can only be justified by pretending that there are no other options except giving away six-bedroom homes as gifts to deadbeats.

Of course there are other options. How could there not be?

I tend not to trust people who tell me there are only two ways to, especially when both ways are extreme. The world really is not a set of choices between Galt Gulch and Soviet Communism, between repealing the Fourth Amendment and accepting Sharia law, between life in a religious commune and life in a Vegas brothel. And generally when somebody tells me that I have to make a choice like that, I presume that person is trying to hustle me. The choice between "never foreclose on any home for any reason" and "foreclose on people whether you actually have title to their home or not" is obviously a hustler's presentation of the choice. And of course, you can't take a time out to think, because we have to foreclose now! Right away! There's no time to think over the actual rights and wrongs! (This is why it's called hustling.)

Ezra Klein has a characteristically excellent post running down four practical solutions to help homeowners in realistic ways that help homeowners without simply ripping off the lenders. The whole piece is worth a read, and the options are basically sensible. They include simple things like requiring mediation before a foreclosure and changing HAMP so that banks have to opt out instead of opting in, bigger things like allowing bankruptcy judges to modify the principal on mortgages for primary residences, and practical fixes like the "right to rent," in which borrowers lose the house and their equity but can remain as tenants paying market rents for a set period.

All of those sound reasonable to me. I'm personally a big fan of cramdown, the modification of principal by bankruptcy judges. That could allow banks and borrowers to split the difference between the inflated house prices on which the original loan was based and the current market price, so that both the lender and the borrower take a haircut on their mutual bad investment. That would also help separate the borrowers who can actually pay from the ones who never could, and the borrowers who genuinely bought much more than they could afford from the homebuyers who, because of the bubble, had to spend a million dollars for what would usually be four hundred thousand dollars of house.

In other news, here's Digby recommending serious jail time for the people who actually turned fraud into something routine. I have to admit that sounds pretty reasonable, too.

Bailout II: The Sequel

cross-posted at dagblog

So, the story about bad mortgages, by which I mean not simply ill-conceived loans on houses that have hemorrhaged value but loan transfers with forged or non-existent paperwork, is beginning to make it into the daily news. We're going to hear much more about it, I'm afraid. As of today, all 50 state attorney generals are beginning to investigate fraudulent foreclosures and mortgage filings by the banks.

One obvious and huge problem is that people are losing their homes without due process. That is obviously unjust, and bad for the economy while we're at it. A second problem is that an outright moratorium on all foreclosures will, in fact, do destructive things to the economy. That is a sobering problem.

But there's a third problem, just beginning to creep into view: most of those mortgages have been sliced, diced and pureed into the infamous mortgage-backed securities we all remember so fondly from 2008. That securitization, the process of turning individual mortgages into the various bonds, CDOs, and other derivatives that they were turned into, means that the titles to the underlying mortgages were transferred several times between various financial entities. But if the transfers of the mortgages themselves were never legal, and it's becoming clear that illegal transfers were routine, then there it becomes unclear if these mortgages were ever legally sold, or who owns them. And most of these securities have clauses that force the original sellers to buy back the loans if too many of the underlying mortgages turn out to be bad.

Now, if this sounds like a recipe for everybody in the financial world to sue everybody else, it is. But it's worse, because it becomes quite unclear who owns any of those mortgages at all.

Are you excited yet?

Remember all those big financial firms who almost went under during the financial crisis two years back? Remember how they were in danger of going bankrupt because they were holding all of these complicated securities backed by crappy mortgages, and when those became, ahem, "distressed assets" by losing most of their alleged face value the banks were no longer actually solvent? How could we forget, right? Well, imagine that all of those terrible securities have now officially become hot potatoes that the banks can legally attempt to foist back on one another. The new game is about to become You never legally sold us this, so here. It's still yours.

And before you say that this is all about technicalities, ask this: what lawyer is going to let a client lose tens of millions of dollars when a "mere legal technicality" would prevent that loss? Which megabank is going to go under by voluntarily overlooking such technicalities while all of the other megabanks use them to wriggle toward survival? I think we all know the answers to those questions.

Back when those crappy securities were merely "distressed assets," the Federal government bailed out the owners of those companies so they could stay in business pretending to be solvent. Now those assets are likely ownerless, meaning more huge write-offs on balance sheets, and various huge firms are going to be trying to stick one another with massive losses. Meanwhile, no one is going to be ready to trust any of those firms, because no one knows who is going to come out a winner and who is suddenly going to end up eating a $2 billion loss. Basically, there's a real danger of repeating 2008: massive financial firms in danger of collapsing, and taking large chunks of the real economy down with them when they go, and a general financial panic in which uncertainty about who is about to go down makes everybody unwilling to do business and thus leads to even more firms actually going down.

Oh, and by the way, the TARP money that the Administration could use to bail out huge firms in a jam? Just expired. Isn't it ironic?

And here's the thing: we can't repeat the bailout process from two years ago. We also shouldn't, but more importantly we can't. It was massively unpopular then, and it's only grown more unpopular. The Republicans are currently building their entire program around their alleged loathing of the first bailout and trying to stick the Democrats with the blame for it. And no voter in the world could stomach the same firms coming back with their hats in their hands again, not so soon.

So our national leaders may face a stark choice sometime over the next year. TARP II will be out of the question. Letting big companies fail, which the Tea Party Republicans will insist on, will likely make TARP I look sensible by decimating our economy for the next thirty years, but if we make that mistake it won't be reversible. The only way to intervene to save the financial sector will have to be punitive: Obama would need to nationalize large financial firms, cut executive pay, send a couple of people Wall Street reveres to prison. The Republican opposition will of course try to prevent anything even remotely like that, and most of what will need doing will require Congressional approval. But if Obama tries anything else, he's done for. The only way to build popular support for a second intervention in the financial sector is to go in as the sheriff cleaning up town.

I have no idea what will happen if push comes to shove again. But what Obama does will be about the choices he perceives himself as having. He would never do anything resembling this except to avoid disaster. But disaster may be coming.

Women Against Christine O'Donnell

cross-posted at dagblog

Monmouth University has a new poll on the Delaware Senate and Congressional races, and it's painful for the Republicans, especially for Senate nominee Christine O'Donnell. The top line: Chris Coons is leading O'Donnell 57% to 38%. O'Donnell has a grisly 58% disapproval rating with only 31% favorable, and Delaware voters consider her unqualified for the Senate by a margin of 57% to 35%. That's pretty painful.

Meanwhile, Coons is considered qualified (64% to 25%)and has a 50% approval rating with 33% disapproving. Those numbers aren't eye-poppingly good, and suggest that Coons may still be a relatively unknown commodity with voters, but O'Donnell's higher visibility is obviously not helping her.

What's most surprising though is the cross-tabs. Because for all the talk about the new wave of conservative Republican women, O'Donnell's numbers with female voters are abominably weak. She's not just losing women; she's losing because of women.

Only 22% of women polled view O'Donnell favorably. A landslide 68% view her unfavorably. Only 25% of women voters in Delaware consider O'Donnell qualified, and 67% do not. (Among men, O'Donnell has a -10% approval rating, and men come closer to an even split on her qualifications, with 44% calling her qualified and 48% not. Bad numbers, but not the horror show that the rest of O'Donnell's polling is.)

In fact, if only men held the franchise, this poll would give Christine O'Donnell a tiny, statistically meaningless lead: she's winning men 48% to 46%. It's women, splitting 68% for Coons and only 27% for O'Donnell, who turn the race into a 19-point blowout.

Some of this, of course, is about the fact that women skew Democratic and men Republican. But it also raises the question, again, of which voters the new crop of Palinite female characters candidates are designed to appeal to.

The Palin model, of which O'Donnell is only this year's most prominent update, is young, conservative, and attractive, but also typically weak on credentials and experience, openly anti-intellectual, and conspicuously reliant on faith and emotion in decision making. What's amazing about such candidates is that they so clearly fit misogynist stereotypes: strong hearts and weak heads, poor in book learning and logic but apt to be overwhelmed by the strong tides of their feminine feelings. I find the attempt to turn such a negative stereotype into a positive qualification for high office absolutely bizarre.

What's even more bizarre, but perhaps illuminating, is that men, or at least a plurality of men registered to vote, tend to view such female candidates as qualified, while other women do not. But it makes sense. If you take women seriously, it's obvious that most of these specific women are not serious in the least. Everybody knows dozens of women, just in their own zip code, who would make better senators than Christine O'Donnell would. It's only if you expect nothing of women that such women could meet your expectations.

If think of women as adult members of the human race, these candidacies are not simply jokes, but insults. But if you prefer to imagine women as passionate, feisty, emotional, and not terribly smart, Sarah Palin and Christine O'Donnell are just the gals for you.

Petition SUNY Albany

I've been blogging angrily about SUNY ALbany's foolish attempt to "globalize" by cutting French, Italian, and Russian from the curriculum.

If you, like me, consider this decision foolish and bad for the education of SUNY Albany's students, please consider signing this petition to restore those crucial languages to SUNY Albany. Thanks.

Merci. Grazie. Et cetera.

Cross-posted at Dagblog

21st Century Education: SUNY Albany Edition

cross-posted at Dagblog

Earlier this week, I blogged about SUNY ALbany's plan to fulfill its "world-wide" mission by cutting almost all of its European language programs and declaring its intention to fire the full-time tenured faculty who teach French, Russian, Italian, and the classics. At the same time, Albany cut its theater major.

I'd like to walk through the logic behind these particular cuts, because they're a striking example of how American universities are changing, and an illustration of the changes most critics of "hidebound" and "old-fashioned" universities would like to enact. Why did the President of SUNY Albany pick these programs for cutting?

The kneejerk response is that all of those programs were somehow "impractical." We all know how impractical the humanities are, right? But a few moments' thought suggests that this is wrong. There are a number of majors, in the humanities or out, that are probably less practical as employment training than the programs that have been cut. I won't single out any for disrespect, but SUNY is retaining some humanities programs that are less obvious preparation for a specific career than a BA in French is. It also has a number of social-sciences and natural-sciences majors which, to put it delicately, are perhaps more specialized than a sound undergraduate degree would be, and which certainly don't constitute a professional credential in their fields. (If you need a graduate degree in a field to get a job, and graduate students in that field have typically majored in biology or chemistry or economics first, the existence of the undergrad major strikes me more as marketing than education.) After all, foreign-language majors can easily take their skills to other industries, but at the very least they're preparing for a possible career as high-school teachers. Cutting the BA and MA in French isn't about getting rid of frivolous or impractical majors, unless New York high schools are no longer hiring French teachers.

Theater, which also sounds like a flaky liberal-arts major, is also a clearly pre-professional program, which trains directors and theatrical designers as well as actors. There are actual jobs for lighting designers, set designers, and costume designers, about 150 miles from Albany, and having solid professional training in those fields is a serious help. SUNY Albany, which is three or four hours away from both Broadway and Montreal, just cut its theater major and its French major. Real-world value was not the issue.

The reason that these programs were cut is not because they were flaky or worthless. It is because they were expensive. Every one of those fields demands labor-intensive instruction by highly trained specialists. There is no way to put any of these fields on a mass-instruction basis.

You learn Russian, if you're actually going to learn Russian, by taking a number of small, labor-intensive classes over a few years. There's no way to turn Russian class into a large lecture, where three hundred kids sit and look at Power Points about how to decline nouns. No one can even propose that with a straight face. (In fact, secondary-school language teaching is already badly hampered by trying to fit the usual high-school class size. Classes of twenty-five or thirty teenagers, forty-five minutes a day, will achieve basic language proficiency in an average of seven thousand years.)

Nor can you turn the instruction over to technology ... Rosetta Stone isn't exactly filling America with linguists. You can send undergraduates to the language lab for extra drill instruction, but you can't have just the language lab and not the classes. What you're stuck with, as a university, is a set of courses that require a low and therefore expensive student-to-teacher ratio, one faculty member in a room with ten or twelve sophomores. And the teacher's expertise obviously determines how much the students can learn; if you put someone who's not entirely fluent in the target language or someone who has a funky accent into the classroom, the students don't learn properly. So you need teachers with specialized skills, but you can only charge a limited number of student-credit-hours for each one of those teachers.

(All of this also goes for most theater classes. You can't teach acting, directing, or costume design to large lecture groups. You need small hands-on courses where a teacher with serious professional expertise observes and guides the students' efforts.)

The only way to economize on language teaching at all is to turn it over to poorly-paid "part-time" faculty, lowering the overhead for each course. French 101 and 102 get taught by people without actual salaries or benefits, for a per-course fee. But you can't run a major or offer most serious advanced courses that way. You can hire people on the cheap to teach basic grammar and vocabulary, but students won't become fluent unless you're paying for an actual department. C'est la vie. Same thing goes for theater; you can pay someone a scandal wage to teach the introductory classes, and that will go fine. But you can't teach the advanced stuff without faculty who are further along in their careers. If you want to produce graduates who can get jobs in lighting design off-Broadway or off-off-Broadway, you need faculty who have already succeeded as lighting designers off- or on Broadway themselves.

So, let's be very clear about what SUNY Albany is doing. They are going to keep introductory-level language courses, taught by ill-paid and overworked adjunct instructors. But they will cut the advanced courses in French, Russian, Italian, and the classics and cut the faculty whose responsibility it was to make sure that instruction in those languages stayed up to standard. Few or no students will actually learn enough of those languages to be useful, but they will manage to fulfill language requirements. It's cheaper to give people credit for filling requirements than it is to teach them things. In theater, I suppose, there will be no more advanced classes, but likely they will retain some introductory courses as "fun" electives, which students can treat as a diversion instead of work, and which will not lead to any more demanding or instructive studies. This will all be inexpensive; it will probably actually show a bottom-line profit which can be used to underwrite other programs. The only cost will be that the students will realize that the courses don't actually teach them anything, and decide that a university education is about checking off boxes instead of learning. That attitude will carry over into their other classrooms.

But have no fear: SUNY Albany will keep its "spectacular" Performing Arts Center, even if they're not educating performing artists anymore. And they will continue to boast of their "nearly 500 study abroad programs," including programs in France, Italy, and Russia. How is that possible? For many of those programs, there is "NO previous study required" (caps in the original), as SUNY Albany would like you to know. Study-abroad programs, unlike teaching languages, are a cash cow for universities, with a high profit margin.

So, when you hear people talking about how the American university needs to be "transformed" and how outdated models need to be swept away, or how universities should be run "more like a business," remember that this is what is being proposed: a shift to the lowest-cost instruction available, and an emphasis on "productivity" in terms of easily measurable units, such as credit hours and credentials, rather than on difficult-to-quantify questions like student learning. Teaching students to speak another language is expensive. Certifying that they sat through a language class can be very cheap indeed.

The operation of the free market, which will supposedly make universities innovative and forward-thinking, actually produces more old fashioned big lectures, in which a single faculty member can be paid to teach several hundred students at once. That format is enormously inefficient in terms of student learning; big lectures are clearly less effective than small-group teaching in every field, but when the lecturer is teaching history or economics schools can call the results good enough. This is about economics, rather than teaching economics.

A freer, more economically "rational" market does not produce higher-quality goods in this example, or lower prices. Rather, it leads to lower-quality instruction for increasing prices, with a few flashy deluxe items, such a spring semester in Milano for monolinguists, which exact a hefty price premium for the shopping experience. Welcome to the 21st century.