Tuesday, May 20, 2008

The danger of inaccurate characterizations

There's a fine line between a misleading characterization and an outright lie, and the news media in particular seems to enjoy dancing between both sides. There is a certain danger in that, which is compounded by its subtlety and lasting effects.

For example, consider religious suicide bombers. One could accurately characterize them as homicidal zealots. One could also characterize them as patriotic freedom fighters. The prevalent characterization among the respected figures in the society in which people decide to become suicide bombers can greatly affect people's decisions, and indeed their lives.

It's disingenuous for people, and in particular for the American news media which typically claims unbiased reporting, to claim honesty in reporting while ignoring honesty in characterizations. Moreover, there's a long-term large risk involved in deceiving the public with repeated misleading characterizations, to the point where people think they are supporting one thing, but end up supporting the exact opposite, just because of inaccurate characterizations.

Take, for example, a current topic: the housing bailout bill recently passed by the senate. Per CNN's characterization, the bill would:
limit foreclosures [and] create affordable housing...

The bill, in actuality, is a bailout for speculators and irresponsible lenders. It gives money to people who were financially irresponsible, and helps them stay in houses they should not have been able to purchase, thus making houses less affordable. It does nothing to limit foreclosures, although it does shift some liability for bad loans from the lenders to the taxpayers.

...a voluntary initiative at no estimated cost to taxpayers which will help Americans keep their homes.

Again, disingenuous at best to take the no-cost claim at face value, when the bill explicitly provides $300 billion dollars of taxpayer-backed loans for at-risk borrowers who are likely to default. That's 10x the amount shouldered to bail out Bear Sterns, and 2x the amount of the stimulus package, which was an explicit spending program of future tax revenue. How can you plan to give away twice as much money and claim no cost to taxpayers? I tell you how: by lying.

The news media has (or should have) a social responsibility to be accurate in their reporting, and this is an example of the worst kind of inaccuracy: systemic, subtle, intentional, and fraudulent mis-characterization done intentionally do distort, mislead, and deceive the public. This kind of "reporting" is so far over the line, it really should be criminal to call it news.

Monday, May 12, 2008

Shelley Berkley

This post dedicated to Rep Shelley Berkley, representing the state of Nevada. She's has the honor of being the latest person added to my growing list of blithering idiots representing people (who, I can only assume, are also blithering idiots) in our Congress.

She makes the list for voting for all provisions of the taxpayer bailout of speculative housing purchases bill, with the following justification: “‘You cannot have row after row of unoccupied homes in neighborhoods,’ Berkley said in an interview. ‘It drives down values.’”

Hey, news flash for ya Shelley, and I'll try to use small words: If you don't want row after row of unoccupied homes, figure out a way to encourage the owner to sell or rent them! Here's a humble suggestion, for example: impose a tax on the owners of unoccupied homes after a period of time, per-month that they sit there.

Houses are sitting vacant because owners (banks, builders, speculators) are expecting a bailout. They are waiting for you to droll your way to the legislation you're voting for. YOU ARE CAUSING THE PROBLEM!!! Stop being part of the problem, and start being part of the solution!

For being a glowing example of everything that's wrong with our Congress, for being presumably too stupid to even read the bailout bill, much less comprehend the effects, and for striving to interfere with the markets in a time honored government tradition unblemished by a hint of public benefit, Shelley Berkley is inducted into the Hall of Fame of Blithering Morons. Grats.

Friday, May 9, 2008

Housing market observations

Just random musings about the current state. The housing market appears to be kinda in limbo right now, holding it's collective breath waiting for the next election and what shape the inevitable speculator bailout comes in.

There are some buyers, but mainly these are people thinking they are getting a good deal based on the prices at the height of the bubble, and the irrational belief that prices will regain their inflated values sooner rather than later. These are mostly speculators, and in most cases will probably constitute an eventual additional wave of foreclosures and defaults. They are hedging that the bailout will come before they are insolvent, and the taxpayers will buy their homes for them.

There are lots of people trying to sell, but REO inventories are still accumulating. This is partially due to increasing NOD/foreclosures, but also due to banks insisting on dishonest and deceptive pricing and sales practices, as they try to fool buyers into thinking they are getting deals while still selling over market. They are finding some fools, but just like in the bubble formation, chasing short-term profits will likely be worse for them in the long term, as people lose faith in their pricing, and eventually stop buying all together due to suspicion. At that point, the banks hope the bailout will have come, otherwise there's likely to be a massive fire sale as they all implode under the weight of the inventories they can't unload because they were too greedy, dishonest, and despicable (and people will cheer as they do so).

Meanwhile, prices climb slowly downward in some middle ground approximation between the irrational optimist pricing and the real market value. Above market sales where people think they are getting a good deal because the price is below comps will slowly push prices down, even as inventory accumulates, both realized and unrealized (eg: people who are delinquent and underwater but not foreclosed on yet, due to the bank not wanting to show as much inventory in their books). As more people get pushed underwater, the unrealized pending inventory will continue to build, as lenders hope they can manipulate their books long enough to see the bailout socialize their losses from irresponsible lending.

Best thing that could happen for the market? A good, solid, credible, non-revocable promise of no bailout, ever. Force everyone to act as if they need to cut their losses, because there's no multi-billion dollar taxpayer handout coming. Force the market to react like there's not going to be the massive government manipulation everyone expects, and is holding their breath (and housing affordability) hostage for. Until then, we will all wait, and see how stupid our government will be.

Thursday, May 8, 2008

More stuff Congress could do to help housing crisis

Every politician these days is turning over every stone looking for ways to pander to the voters who are looking for help keeping the houses they can't afford. I have a few more things Congress could do to actually help the problem, if they were so inclined. I predict the likelihood of seeing any of these potentially productive changes to be nill.

- Legislate away meaningless auctions
The current trend is to "auction" properties with a hidden reserve value, which is rarely met because it's above the market price, much less the presumed discounted auction result value. Congress could easily forbid such auctions, requiring that all public real estate auctions start at the reserve price, and require property holders who put properties up for auction accept the high bid as the purchase price, always. That would pretty much end all the bogus auctions.

- Require listed sales price to factor in kickbacks
The trend when the market is going down is to mask how low properties sold for by inflating the recorded sales prices, and giving kickbacks to the buyers. A simple law making it fraudulent to not record the accurate net sales prices (liability to realtors and title companies who record sales) would fix that right up, I'd imagine.

- Require sales at listed prices
If you list a property at a price, you should agree to sell at that price or above (as opposed to rejecting qualified offers at the listed price). Again, a simple law would suffice to nip this fraudulent practice in the bud.

It is a good time for vigilance in oversight, as sellers will try to do many questionable things in the coming months/years. This is your opportunity, Congress, to step up and do something right for a change. I expect you'll squander it as usual.

Tuesday, May 6, 2008

Baltimore 'Project 5000'

Time for a specific example of the directly counter-productive approach to fixing the housing crisis, brought to you by the taxpayers and voters of Baltimore. I give you the Baltimore "Keep Housing Unaffordable" plan, aka Project 5000:

This bold, innovative plan has purchased over 10,000 vacant homes at inflated prices with taxpayer money, to ensure they are not allowed to be affordable. To that end, the project is now holding the properties until the city goes bankrupt, to try to forestall the onset of affordable housing as long as possible.

If anyone is reading this blog with any connection to this project, please, for the sake of your city and everyone in the country who wants to be able to afford a house, tell anyone associated with the city and/or the project: Stop hurting America. Stop working against the people's interests. Stop interfering. Just... get out of the way! Oh, and feel free to vote out of office anyone associated with this project, since they are either too stupid to tie their shoes, or are trying to hurt you.