See, minority defaults are the fault of "reverse redlining."
One Occam's Butterknife to rule them all.
If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.
But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.
I was actually beginning to feel sorry for Chase. It seemed to be so flooded with defaulting borrowers that it didn’t have time to foreclose on my house. Eight months after my last payment to the bank, I am still waiting for the ax to fall.
Edmund L. Andrews is an economics reporter for The Times and the author of “Busted: Life Inside the Great Mortgage Meltdown,” which will be published next month by W.W. Norton and from which this article is adapted.
Here's the opening of an interesting new paper that will be presented at this year's Human Behavior and Evolution Society meeting at Cal State Fullerton from May 27-31. "Consanguinity" means cousin marriage (typically, second cousins or closer relations):
It has been speculated that high levels of consanguinity within countries (mating between second cousins or closer, F<0.0156), prevents democratic nation building. High degrees of consanguinity within ethnic kinship groupings (traditional tribal groups and clans) are thought to generate mistrust between those groups through the reinforcement of endogamous social and biological arrangements, with non-democratic regimes emerging as a consequence of individuals turning to reliable kinship groupings for support rather than the market or the state (Kurtz, 2002; Sailer, 2004).
Consanguinity as a major predictor of levels of democratization in a study of 55 countries.This study reports the existence of a significant and robust correlation at the national data scale between consanguinity (as measured by the coefficient of inbreeding), and levels of democratization (as measured by the Economist Intelligence Unit’s Democracy Index) for a sample of 55 countries (r=-.77, P<.05). Comparative correlative analysis found that democracy exhibits a higher magnitude correlation with consanguinity than with measures of nine other factors believed to influence levels of democracy (economic freedom; education; GDP per capita; history of foreign occupation in last 100 years; human development; inequality; IQ; media age; and percentage exports in non-renewable resources). Multiple regression analysis further revealed that consanguinity was the strongest predictor of differences in levels of democracy, although three factors (history of foreign occupation in last 100 years; inequality; and percentage exports in non-renewable resources) also produced statistically significant β coefficients. These results are interpreted in light of the theory that democracy only seems to be an optimal political system for countries in which consanguinity has not allowed for the extensive perpetuation of genetically closed kinship groupings (clans or tribes), as these will tend to maximize both their collective utility and inclusive fitness through securing resources at the expense of other kinship groupings.
Michael A. Woodley
Institution: School of Biological Sciences, Royal Holloway, University of London.
I had a number of encounters with Andreotti when he was Prime Minister, and also met frequently with some of the Democristiani conservatives who despised him. They used to refer to him as "Il Gobbo" the hunchback due to his peculiar posture, which you describe in the review. A gobbo in vernacular Italian also implies treacherous and sly. Andreotti ignored the US Ambassador in Rome and insisted on regular meetings with the CIA Chief of Station whenever he had questions or something to convey. I would go along to carry the Chief hat's. The Chief was old school and the conversations in Italian were elliptical to say the least, making it possible to leave the room without any idea of what had just taken place. As the Agency had the prime minister's office bugged anyway, I frequently had this vision of my boss returning to the station to review the tape to try to figure out what Andreotti had been talking about.
Of the several demographic attributes included in the analysis, the immigrant share of the county population is the one that emerges as the most important correlate with the foreclosure rate. And within the immigrant population, the share of foreign-born Latinos stands out as a more notable influence than the share of non-Hispanic immigrants (Appendix Table A5). This may mean exactly what it appears to be—the foreclosure rate among the immigrant population, especially immigrant Latinos, is higher than average.
However, it is also possible that the presence of immigrants serves merely as a stand-in for underlying circumstances not otherwise captured in the data. In recent years, the construction boom attracted immigrants in large numbers into new settlements in the U.S. (Kochhar, Suro and Tafoya, 2005; Frey, Berube, Singer and Wilson, 2009) Many of these areas, such as those surrounding Las Vegas and Atlanta are now witnessing sharp reversals in construction and high rates of foreclosures. The increased presence of immigrants in an area may simply signal the effects of a boom-and-bust cycle that has raised foreclosure rates for all residents there. Thus, it is not possible to affirm that immigration levels in and of themselves raise foreclosure rates.
A close examination of their finances shows that the Obamas were living off lines of credit along with other income for several years until 2005, when Obama's book royalties came through and Michelle received her 260% pay raise at the University of Chicago. This was also the year Obama started serving in the U.S. Senate.
During the presidential primary campaign, Michelle Obama complained how tough it was to make ends meet. During a stop in Ohio, she said, "I know we're spending - I added it up for the first time - we spend between the two kids, on extracurriculars outside the classroom, we're spending about $10,000 a year on piano and dance and sports supplements and so on and so forth."
Let's examine how tough things were for this couple using various public records.
In April 1999, they purchased a Chicago condo and obtained a mortgage for $159,250. In May 1999, they took out a line of credit for $20,750. Then, in 2002, they refinanced the condo with a $210,000 mortgage, which means they took out about $50,000 in equity. Finally, in 2004, they took out another line of credit for $100,000 on top of the mortgage.
Tax returns for 2004 reveal $14,395 in mortgage deductions. If we assume an effective interest rate of 6%, then they owed about $240,000 on a home they purchased for about $159,250.
This means they spent perhaps $80,000 beyond their income from 1999 to 2004.
The Obamas' adjusted gross income averaged $257,000 from 2000 to 2004. This is above the threshold of $250,000 which Obama initially used as the definition of being "rich" for taxation purposes during last year's election campaign.
The Obama family apparently had little or no savings during this period since there was virtually no taxable interest shown on their tax returns.
In 2003, they reported almost $24,000 in child care expenses and, in 2004, about $23,000. They also paid about $3,400 in household employment taxes each year. And as Michelle stated, they spent $10,000 a year on "extracurriculars" for the children.
I was looking at a globe today as I dusted. If a satellite orbits over 32 to 35 degrees latitude, it flies over the Mexican border and also Iran, Iraq, Israel, Pakistan, and Afghanistan. . . Do you suppose we have any satellites flying there?
It will be wonderful if the results are as good as they sound, but hold the champagne.Murray points to this pointed response on Gotham Schools, which cites data in this report:
I’m not being mindlessly pessimistic. The problem is that we have had 40 years of “Miracle in X”—the early Head Start results, the Milwaukee Project, Perry Preschool, the Abecedarian Project, Marva Collins’s schools, and the Infant Health Development Project, to name some of the most widely known stories—and the history is depressingly consistent: an initial research report gets ecstatic attention in the press, then a couple of years later it turns out that the miracle is, at best, a marginal success that is not close to the initial claims.
I haven’t seen the study by Roland Fryer and Will Dobbie that was the basis for Brooks’s column, but if I’m going to be such a grinch I might as well lay out the kinds of things I will be looking for (these are generic issues, not things that I necessarily think are problems with this particular study) when I get hold of a copy:
1. Selection factors among the students. Did the program deal with a representative sample? Was random assignment used?
2. Comparison group. Who’s in it? Are they comparable to the students in the experimental group?
3. Attrition. What about the students who started the program but dropped out? How many were there? How were they doing when they dropped out?
4. Teaching to the test. After seven years of No Child Left Behind, everybody knows about this one. Worse, there are the school officials who have rigged attendance on the day the test was taken or simply faked the scores—that’s been happening too with high stakes testing.
5. Cherry-picking. Do the reported test scores include all of the tests that the students took, or just the ones that make the program look good?
6. The tests. Do they meet ordinary standards for statistical reliability, predictive validity, etc.
7. Fade-out. Large short-term test score improvements have, without exception to date, faded to modest ones within a few years.
Just How Gullible is David Brooks?
by Aaron Pallas
It’s true that eighth-graders in 2008 scored .20 standard deviations above the citywide average for white students. But it may also be apparent that this is a very unusual pattern relative to the other data represented in this figure, all of which show continuing and sizeable advantages for white students in New York City over HCZ students. The fact that HCZ seventh-graders in 2008 were only .3 standard deviations behind white students citywide in math is a real accomplishment, and represents a shrinkage of the gap of .42 standard deviations for these students in the preceding year. However, Fryer and Dobbie, and Brooks in turn, are putting an awful lot of faith in a single data point — the remarkable increase in math scores between seventh and eighth grade for the students at HCZ who entered sixth grade in 2006. If what HCZ is doing can routinely produce a .67 standard deviation shift in math test scores in the eighth grade, that would be great. But we’re certainly not seeing an effect of that magnitude in the seventh grade. And, of course, none of this speaks to the continuing large gaps in English performance.Teaching to the test gets a bad rap, but it's only partially deserved. At least they're teaching something!
But here’s the kicker. In the HCZ Annual Report for the 2007-08 school year submitted to the State Education Department, data are presented on not just the state ELA and math assessments, but also the Iowa Test of Basic Skills. Those eighth-graders who kicked ass on the state math test? They didn’t do so well on the low-stakes Iowa Tests. Curiously, only 2 of the 77 eighth-graders were absent on the ITBS reading test day in June, 2008, but 20 of these 77 were absent for the ITBS math test. For the 57 students who did take the ITBS math test, HCZ reported an average Normal Curve Equivalent (NCE) score of 41, which failed to meet the school’s objective of an average NCE of 50 for a cohort of students who have completed at least two consecutive years at HCZ Promise Academy. In fact, this same cohort had a slightly higher average NCE of 42 in June, 2007.
Normal Curve Equivalents (NCE’s) range from 1 to 99, and are scaled to have a mean of 50 and a standard deviation of 21.06. An NCE of 41 corresponds to roughly the 33rd percentile of the reference distribution, which for the ITBS would likely be a national sample of on-grade test-takers. Scoring at the 33rd percentile is no great success story.How are we to make sense of this? One possibility is that the HCZ students didn’t take the Iowa tests seriously, and that their performance on that test doesn’t reflect their true mastery of eighth-grade mathematics.
Most have opted to pursue the “universal” model—prekindergarten for every four-year-old is their campaign slogan— rather than seeking more intensive intervention services targeted on a far smaller group of acutely disadvantaged children. Although the moral energy of the “universalists” derives from the claim that such a program will close educational gaps between America’s haves and have-nots, their political strategy rests on the belief that enacting and funding any such program depends on mobilizing the self-interest of middle-class families who would welcome government-financed day care and an early educational advantage for their own kids. (The flaws in this approach reverberate through the following pages.) ...
Although it serves enormous numbers of small children, today’s ragged armada of day care and preschool operators and programs, with their variegated eligibility requirements, uneven quality standards, and twisted funding streams, dismays advocates whose strategy hinges on propagating identical, universal programs designed to appeal to millions of parents and voters. That strategy relies on gaining the political boost that comes from offering John Q. and Sally Z. Public, both of them now working, the prospect that somebody else will pay for their child care, creating a new middle-class entitlement to government-financed services for their four- (and maybe three-) year-olds, wrapped in much hype about school readiness and social justice for the poor.
Fannie Loses $23 Billion, Prompting Even Bigger Bailout
Fannie Mae reported yesterday that it lost $23.2 billion in the first three months of the year as mortgage defaults increasingly spread from risky loans to the far-larger portfolio of loans to borrowers who have been considered safe. ...
The sobering earnings report was a reminder of the far-reaching implications of the government's takeover in September of Fannie Mae and the smaller Freddie Mac. Losses have proved unrelenting; the firms' appetite for tens of billions of dollars in taxpayer aid hasn't subsided; and taxpayer money invested in the companies, analysts said, is probably lost forever because the prospects for repayment are slim.
But the government remains committed to keeping the companies afloat, because it is relying on them to help reverse the continuing slide in the housing market and keep mortgage rates low.
Even as the government bailout of banks appears to be leveling off, the federal rescue of Fannie and Freddie is rapidly growing more expensive. Fannie Mae said that the losses will continue through at least much of the year and that it "therefore will be required to obtain additional funding from the Treasury." Analysts are estimating that the company could need at least $110 billion.
Freddie Mac, which has been in worse financial shape than Fannie Mae and has obtained $45 billion in taxpayer funding, will report earnings in coming days....
Fannie Mae, of the District, and Freddie Mac, of McLean, have been growing ever more dependent on federal largesse. The Federal Reserve has bought $366 billion of their mortgage investments and $70 billion of their debt, and has pledged to buy hundreds of billions of dollars more of both. The Treasury has pledged $200 billion to each company to keep them solvent and already bought $124 billion of their mortgage investments.
In total, the government has committed about $2 trillion to supporting Fannie and Freddie and buying the securities they issue.
Over the next 10 years, the government's rescue of Fannie Mae and Freddie Mac is expected to cost $389 billion, exceeding the cost of investments in banks and other financial firms by the government's Troubled Assets Relief Program, according to a recent study by Subsidyscope, a project of the Pew Charitable Trusts. The group based its calculations on Congressional Budget Office figures.
The federal government seized Fannie Mae and Freddie Mac last September out of concern that they would collapse and threaten the entire financial system. Since then, the companies have been called on to carry out large parts of the government's plan to spur a housing recovery by modifying mortgages and taking anti-foreclosure steps.
Fannie Mae said these programs are likely to have "a material adverse effect on our business, results of operations and financial condition, including our net worth." But, it said, the program could yield long-term benefits. "If, however, the program is successful in reducing foreclosures and keeping borrowers in their homes, it may benefit the overall housing market and help in reducing our long-term credit losses."
But in a filing, Fannie Mae said, "We expect that we will not operate profitably for the foreseeable future." The plight of Fannie Mae and Freddie Mac contrasts with the findings of federal "stress tests" done on the country's largest banks. The government announced Thursday that the tests showed that only one bank, GMAC, required additional public aid, with the tab at $9.1 billion. Fannie Mae's earnings results also contrast with reports in recent weeks by the biggest banks that they are returning to profitability.
Even the ailing insurer American International Group said Thursday that it may not need more taxpayer dollars.
Many banks that have received bailout funds said they will try to pay the government back. But that doesn't hold true for Fannie and Freddie. Their financial situation is so weak that they may have to borrow government money to pay dividends due to the government on money borrowed previously.
Don't you get the feeling that some well-connected Wall Street personage is going to pocket a commission on this purely nominal accounting transaction?
Yet even if the companies were profitable, they might not be able to pay back the money because the dividend payments are so onerous.
"The scenario where these guys can earn money to pay that back is remote," said Bose George, an analyst a New York investment bank Keefe, Bruyette & Woods.
Jim Vogel, an analyst at FTN Financial, said the amount of taxpayer money that must flow to Fannie and Freddie will be clear in the coming months. He said it will depend on whether government efforts to keep people in their homes can make significant headway even as rising unemployment makes it more difficult for many to afford their loans.
"We need more to pass to see how people react to all the different plans to help people with mortgages and how people react to a prolonged period of unemployment," Vogel said.
According to analysts, Fannie Mae's financial assumptions aren't as bleak as those embodied in the government's stress tests of major banks. For the tests, the government assumed that the percentage of loans going bad in a portfolio would range from 1.5 percent to 4 percent. Fannie Mae assumes that only 1.45 percent of loans will be bad, suggesting that the company would have to come up with much more money to cover losses if a worse scenario comes to pass.
Well, that sounds swell.
A major reason for concern about Fannie Mae and Freddie Mac is the size of their exposure to the mortgage market, analysts said. Fannie Mae and Freddie Mac own $5.4 trillion in assets, and all of those are mortgages, the worst-performing kind of loan. By comparison, the total assets -- from mortgages to credit card loans -- held by the 19 big banks that underwent stress tests was $7.8 trillion.
Pressuring nonbank lenders to make more loans to poor minorities didn’t stop with Sears. If it didn’t happen, Clinton officials warned, they’d seek to extend CRA regulations to all mortgage makers. In Congress, Representative Maxine Waters called financial firms not covered by the CRA “among the most egregious redliners.” To rebuff the criticism, the Mortgage Bankers Association (MBA) shocked the financial world by signing a 1994 agreement with the Department of Housing and Urban Development (HUD), pledging to increase lending to minorities and join in new efforts to rewrite lending standards. The first MBA member to sign up: Countrywide Financial, the mortgage firm that would be at the core of the subprime meltdown. ...
Congress later took up where Clinton left off. Not content that nearly seven in ten American households owned their own homes, legislators in 2004 pressed new affordable-housing goals on the two mortgage giants, which through 2007 purchased some $1 trillion in loans to lower- and moderate-income buyers. The buying spree helped spark a massive increase in securitization of mortgages to people with dubious credit. To carry out this mission, Fannie Mae turned to old friends, like Angelo Mozilo of Countrywide, which became the biggest supplier of mortgages to low-income buyers for Fannie Mae to purchase.
Executives at these firms won hosannas. Harvard University’s Joint Center for Housing Studies invited Mozilo to give its prestigious 2003 Dunlop Lecture. Subject: “The American Dream of Homeownership: From Cliché to Mission.” La Opinión, a Spanish-language newspaper, dubbed Countrywide its Corporation of the Year. Meantime, in Congress, Waters praised the “outstanding leadership” of Fannie Mae chairman Franklin Raines.
It's not clear, however, which way the arrow of causality flows here. My best guess is that Mozilo figured out that there could be huge profits in "predatory securitizing" and browbeat Fannie and Freddie into letting him dump his crud loans on them so that they wouldn't lose marketshare and because Countrywide had played the race card so heavily over the years in building up its reputation as the "paragon" of diversity lending. (Countrywide sold all the mortgages they originated as fast as they could package them up.) So, Fannie and Freddie didn't invent the Bubble, but their massive entry into the buying up terrible loans in 2005 and 2006 from boiler room operators like Countrywide caused the disaster to reach its most lurid heights.
It now looks like we taxpayers are going to be subsidizing Fannie and Freddie for, roughly, ever.