October 18, 2008

The ever-expanding Steveosphere

The New York Times runs an article that provides a human interest illustration for my June "Diversity Recession" thesis:

The Reckoning
Building Flawed American Dreams

SAN ANTONIO — A grandson of Mexican immigrants and a former mayor of this town, Henry G. Cisneros has spent years trying to make the dream of homeownership come true for low-income families.

As the Clinton administration’s top housing official in the mid-1990s, Mr. Cisneros loosened mortgage restrictions so first-time buyers could qualify for loans they could never get before.

Then, capitalizing on a housing expansion he helped unleash, he joined the boards of a major builder, KB Home, and the largest mortgage lender in the nation, Countrywide Financial — two companies that rode the housing boom, drawing criticism along the way for abusive business practices.

And Mr. Cisneros became a developer himself. The Lago Vista development here in his hometown once stood as a testament to his life’s work.

Joining with KB, he built 428 homes for low-income buyers in what was a neglected, industrial neighborhood. He often made the trip from downtown to ask residents if they were happy.

“People bought here because of Cisneros,” says Celia Morales, a Lago Vista resident. “There was a feeling of, ‘He’s got our back.’ ”

But Mr. Cisneros rarely comes around anymore. Lago Vista, like many communities born in the housing boom, is now under stress. Scores of homes have been foreclosed, including one in five over the last six years on the community’s longest street, Sunbend Falls, according to property records.

While Mr. Cisneros says he remains proud of his work, he has misgivings over what his passion has wrought. He insists that the worst problems developed only after “bad actors” hijacked his good intentions but acknowledges that “people came to homeownership who should not have been homeowners.”

They were lured by “unscrupulous participants — bankers, brokers, secondary market people,” he says. “The country is paying for that, and families are hurt because we as a society did not draw a line.”

The causes of the housing implosion are many: lax regulation, financial innovation gone awry, excessive debt, raw greed. The players are also varied: bankers, borrowers, developers, politicians and bureaucrats.

Mr. Cisneros, 61, had a foot in a number of those worlds. Despite his qualms, he encouraged the unprepared to buy homes — part of a broad national trend with dire economic consequences.

He reflects often on his role in the debacle, he says, which has changed homeownership from something that secured a place in the middle class to something that is ejecting people from it. “I’ve been waiting for someone to put all the blame at my doorstep,” he says lightly, but with a bit of worry, too.

The Paydays During the Boom

After a sex scandal destroyed his promising political career and he left Washington, he eventually reinvented himself as a well-regarded advocate and builder of urban, working-class homes. He has financed the construction of more than 7,000 houses.

For the three years he was a director at KB Home, Mr. Cisneros received at least $70,000 in pay and more than $100,000 worth of stock. He also received $1.14 million in directors’ fees and stock grants during the six years he was a director at Countrywide. He made more than $5 million from Countrywide stock options, money he says he plowed into his company.

He says his development work provides an annual income of “several hundred thousand” dollars. All told, his paydays are modest relative to the windfalls some executives netted in the boom. Indeed, Mr. Cisneros says his mistake was not the greed that afflicted many of his counterparts in banking and housing; it was unwavering belief.

It was, he argues, impossible to know in the beginning that the federal push to increase homeownership would end so badly. Once the housing boom got going, he suggests, laws and regulations barely had a chance.

“You think you have a finely tuned instrument that you can use to say: ‘Stop! We’re at 69 percent homeownership. We should not go further. There are people who should remain renters,’ ” he says. “But you really are just given a sledgehammer and an ax. They are blunt tools.” [More]

My published articles are archived at iSteve.com -- Steve Sailer

So, how's this McCain guy working out, anyway?

Is he as great a candidate as the media has been telling us for the last decade he would be?

My published articles are archived at iSteve.com -- Steve Sailer

October 17, 2008

A new posting!

The irony is that both nominees have argued that The Problem with Washington is partisanship, and that bipartisanship is a big part of the solution.

And yet, perhaps the most catastrophic policy of recent decades, the relaxation of traditional credit standards to help people achieve the American Dream, was extremely bipartisan.

My published articles are archived at iSteve.com -- Steve Sailer

October 13, 2008

Guys, give up on the "Ayers wrote Obama's book" idea

Wouldn't a simpler explanation be that Ayers read his colleague Obama's 1995 book before writing his 2001 book, and was influenced by it?

The nautical metaphors in Obama can be explained by the fact that on his Facebook page. Obama lists his eight favorite books and one is "Moby Dick."

Ayers is a funnier, livelier writer than Obama. I can't imagine a ghostwriter producing anything as dull as Obama's Dreams.

My published articles are archived at iSteve.com -- Steve Sailer

Liebowitz: Anatomy of a Train Wreck: Causes of the Mortgage Meltdown

Paul Krugman just won the Nobel Prize in economics, but they should have given it to the economist who has been hollering since the 1990s about the government's mortgages for minorities and the poor policies, Stan J. Liebowitz.

He's got a new analysis out that's fairly definitive.

UT Dallas economist Stan J. Liebowitz's witty report on how "relaxed lending standards" to increase home ownership among minorities and low income whites led to the collapes is now online (1 meg PDF).

Anatomy of a Train Wreck: Causes of the Mortgage Meltdown
by Stan J. Liebowitz

PDF Download PDF File (29 pages)

Why did the mortgage market melt down so badly? Why were there so many defaults when the economy was not particularly weak? Why were the securities based upon these mortgages not considered anywhere as risky as they actually turned out to be?

This report concludes that, in an attempt to increase home ownership, particularly by minorities and the less affluent, virtually every branch of the government undertook an attack on underwriting standards starting in the early 1990s. Regulators, academic specialists, GSEs, and housing activists universally praised the decline in mortgage-underwriting standards as an “innovation” in mortgage lending. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The price bubble, along with relaxed lending standards, allowed speculators to purchase homes without putting their own money at risk.

The recent rise in foreclosures is not related empirically to the distinction between subprime and prime loans since both sustained the same percentage increase of foreclosures and at the same time. Nor is it consistent with the “nasty subprime lender” hypothesis currently considered to be the cause of the mortgage meltdown. Instead, the important factor is the distinction between adjustable-rate and fixed-rate mortgages. This evidence is consistent with speculators turning and running when housing prices stopped rising.

Anatomy of a Train Wreck is included in the forthcoming Independent Institute book, Housing America: Building Out of a Crisis, edited by Randall G. Holcombe and Benjamin Powell.

Stan J. Liebowitz is Research Fellow at The Independent Institute, Ashbel Smith Professor of Economics and Director of the Center for the Analysis of Property Rights and Innovation at the University of Texas at Dallas, and co-author with Stephen Margolis of Winners, Losers, and Microsoft: Competition and Antitrust in High Technology, published by the Independent Institute.

Keep in mind that 15 years ago Peter Brimelow debunked the original report/hoax on discrimination against minorities in mortgage lending that set off this chain reaction catastrophe. See his 1993 Forbes article The Hidden Clue.

My published articles are archived at iSteve.com -- Steve Sailer