Hadetoleaveitalone: foreclosure report

Let's go through it one more time. A simple truth: You can't get the right answer if you ask the wrong question.

The furious debate over how best to cut the deficit illustrates the point. The debate is about how we best enforce austerity. How do we bring the federal budget into "primary balance" by 2015 ("primary balance" is wonk for a balanced budget not counting interest payments on the national debt)? Pencils sharpen; green eye shades are donned.

This is a debate about who takes the hit. It is likely to turn ugly. There are progressive answers and regressive ones; some that make more sense, and some that make less. It is bizarre, for example, that at a time of Gilded Age inequality, the co-chairs of the President's Deficit Commission release a report that starts by lowering tax rates and creating a more regressive tax code than under Bill Clinton. Or that after financial gamboling and speculation has blown up the economy, they omit any mention of a tax on financial speculation or a tax on the banks, as even the International Monetary Fund recommends. Or that after Americans have lost some $11 trillion in savings and home values, the co-chairs would feature cuts in Social Security benefits.

A valuable alternative submitted by Rep. Jan Schakowsky, a member of the deficit commission, shows that it is possible to balance the budget by taking more from the Pentagon, hiking corporate taxes, and preserving Social Security. A Citizen's Commission convened by the Campaign for America's Future (which I help direct) will release a report next week arguing strongly that we need greater investment for jobs and growth, and can still bring the deficits down with progressive tax and spending reforms.

This debate rises from what has become a bipartisan elite consensus, reinforced by a multimillion dollar public relations campaign seeded by Pete Peterson, a Wall Street billionaire, who has been rousing alarms about deficits for decades, and is intent on using the current crisis to enforce the turn to austerity. But if there is one thing we should have learned over the years, it is that Americans should be particularly wary about bipartisan elite consensus. It was bipartisan consensus that drove us into Vietnam, trumpeted the corporate free trade regime that left us borrowing $2 billion a day from abroad to cover soaring trade deficits, celebrated financial reform and self-regulating markets, promoted lower tax rates feeding ever greater inequality, and much more. When elites of both parties agree, Americans should take another look.

Today's elite consensus -- that deficits are at crisis levels, that budgets must be brought into balance immediately -- is equally wrong-headed. It slights the real crisis we face, and is foreign to the spirit that made America great.

What is the crisis we face today? We have an economy scarred by mass unemployment, falling wages, and growing insecurity. In the downturn, a staggering 40 percent of American households have been afflicted by unemployment, negative home equity ("under water homes" worth less than their mortgages), mortgage payment arrears, or foreclosure. In November 2008, one quarter of Americans aged 50-59 reported that they'd lost more than 35 percent of their retirement savings.

But this devastation caused by the collapse of the financial bubble and resulting recession is but the foul expression of an economy that has suffered long-term decline. We were hemorrhaging manufacturing jobs when the economy was growing before the bubble burst. Wages fell for most Americans over the course of the last decade, which suffered the worst job creation of any period since the end of World War II. The imbalances were obscene before the recession, with finance capturing 40 percent of corporate profits, the wealthiest 1 percent capturing half of the benefits of economic growth, the US running soaring trade deficits, even in high technology products, with China and the world. Our decaying infrastructure, broken health care system, declining educational performance in relation to the industrial world all preceded the fall.

So if we now turn to balancing our budget and succeed, what then? We will have had a brutal fight that will turn us one against another without addressing the fundamental challenges facing the country.

The right question we need to ask, I would argue, is what is the new strategy, the new foundation for an economy that offers hope for rebuilding America's economic vitality in the competitive global market place? This requires a clear and bold strategy for revitalizing American manufacturing. It requires investments in areas vital to our future -- in modern infrastructure, in education and training, in research and innovation. We need to capture a lead in the green industrial revolution that is sweeping the world. It requires new trade strategy, shackles on financial speculation, empowering workers to capture a fair share of the productivity and profits they help generate to help rebuild America's middle class. We have to figure out how to afford this, financing what we can, changing priorities and raising revenues where needed. But this is a far different question than just how we get our books in order.

Far-fetched? Consider our own history.

In 1937, after years of growth, Roosevelt made the mistake -- one that President Obama and Congressional Republicans seem intent on repeating -- of turning to austerity prematurely, cutting spending to bring the budget towards balance. The result was another downturn. America finally came out of the Depression with the mobilization of World War II, what economists would see as military Keynesianism on steroids. We stopped worrying about deficits and focused instead on what needed to be done to win the war, mobilizing citizens and industry to that cause. Annual deficits ran up to 25 percent of GDP as industry converted to wartime production, workers became GIs and women went to work. Full employment brought families out of debt and depression.

By the end of the war, the federal debt surpassed 120 percent of GDP, about twice what it is today in relation to the economy. Needless to say, it was a major concern. But leaders of both parties did not focus on paying down the debt.

Instead they asked, what do we need to do to create a vibrant peacetime economy? They passed the GI bill to educate a generation of Americans; subsidized the conversion of industry to peacetime production; subsidized housing and the building of the suburbs; sent, at its height, 2 percent of GDP to Europe in the Marshall Plan; set up the Bretton Woods system to control currencies, police financial flows and gin up trade.

They worried about deficits. Eisenhower, a conservative Republican president, put a lid on military spending, kept top tax rates at wartime levels of 90 percent, but also built the interstate highway system and passed the National Defense Education Act.

They were making it up as they went along. Their success created the foundation for the most successful economy the world has seen, building the first broad middle class, making America the envy of the world. The debt kept rising, but the economy grew faster. By 1980, before Ronald Reagan was elected and blew the lid off, it was down to 32 percent of GDP and was not a problem.

This was, of course, the expression of a unified nation, victorious in war, confident that it could forge its future.

Compare that to now. We have an economy desperately in need of new strategy, of restructuring. But divided and cowed, uncertain of our capacity, we worry about getting our books in order for approval by global financiers. Surely this is a recipe for more division and continued decline.

It is hard to get the right answer when you ask the wrong question.

From Fed Governor Elizabeth Duke: Foreclosure documentation issues. She didn't provide any specifics although she noted that the report will be published early next year. She also mentioned some foreclosure data:

The Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve are conducting an in-depth review of practices at the largest mortgage servicing operations. ... The regulators expect the initial on-site portion of our work to be completed this year and currently plan to publish a summary overview of industry-wide practices in early 2011.

Duke discusses some of the potential risks from foreclosure issues, and she noted the Fed expects the number of foreclosures will stay elevated for several years:

The number of foreclosures initiated on residential properties has soared from about 1 million in 2006, the year that house prices peaked, to 2.8 million last year. Over the first half of this year, we have seen a further 1.2 million foreclosure filings, and an additional 2.4 million homes were somewhere in the foreclosure pipeline at the end of June. All told, we expect about 2.25 million foreclosure filings this year and again next year, and about 2 million more in 2012. While our outlook is for filings to decline in coming years, they will remain extremely high by historical standards. Currently, almost 5 million mortgage loans are 90 days or more past due or in foreclosure.

Note: We will have some updated delinquency data tomorrow. For Q2, the Mortgage Bankers Association (MBA) reported that 9.11% of first-liens were 90 or more days delinquent or in the foreclosure process. That was about 4.8 million loans.

Tomorrow morning the MBA will release the Q3 National Delinquency Survey at 10 AM ET - and I'll be on the conference call at 10:30 AM.

http://www.complaintsboard.com/complaints/alpine-payment-systems-c270446.html

Hadetoleaveitalone

Monday, November 29, 2010

foreclosure report

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