March 6, 2009

The MSM start catching on

One of the frustrating things about the Mortgage Meltdown is how little basic factual information, such as where it actually happened, has been conveyed to the public. That embargo is finally starting to break down.

Brad Heath reports in USToday in "Most Foreclosures Pack into a Few Counties:"
More than half of the nation's foreclosures last year took place in 35 counties, a sign that the financial crisis devastating the national economy may have begun with collapsing home loans in only a few corners of the country.

Those counties, spread over a dozen states, accounted for more than 1.5 million foreclosure actions last year, a USA TODAY analysis of figures compiled by the real estate listing firm RealtyTrac shows — more than were recorded in the entire United States just two years earlier. They were the epicenter of a wave of foreclosures that have left leading banks teetering and magnified the nation's economic problems. ...

In other parts of the country, the foreclosure wave was barely a ripple — at least until it started swamping major banks that had invested heavily in mortgages. Banking giant Wachovia Corp., for example, was hammered after California and Florida customers of one mortgage firm it bought began defaulting at high rates. The risks of such lending were spread so broadly among financial institutions that, when the loans went bad, it drove the national credit crisis, says Christopher Mayer, who studies real estate at Columbia Business School.

A few of the 35 counties leading the foreclosure boom are in already-distressed areas around Detroit and Cleveland. But most are clustered in places such as Southern California, Las Vegas, Phoenix, South Florida and Washington, where home values shot up dramatically in the first half of the decade, then began to crumble. ...

The worst-hit counties are home to about 20% of U.S. households, but accounted for just over 50% of the nation's foreclosure actions last year, driving most of the national increase. And even among those places, a few stand out: Eight counties in Arizona, California, Florida and Nevada were the source of about a quarter of the nation's foreclosures last year. In more than 650 other counties — about a fifth of the nation — the number of foreclosure actions actually dropped since 2006.

But median prices were so high and median incomes so low in those eight counties that they probably accounted for half or more of the dollars defaulted. Lucy and Herlitz estimate that 87% of the home appreciation in America happened in the four Sand States between 2000 and 2006, so it's likely that a similar fraction of the downturn in home values happened there.

Nevada had the worst 2008 foreclosure rate at 7.3%, followed by Arizona at 4.5%, Florida at 4.5%, California at 4.0%, Colorado 2.4%, Michigan 2.4%, Ohio 2.4%, George 2.2%, and Illinois 1.9%.

In the four expensive states at the top of the list, people were betting on immigration-driven population growth to continue to drive up housing prices indefinitely. But the immigrants turned out to be unable to pay for expensive houses and their influx lowered property values in neighborhoods where they congregated, and made homes unaffordably expensive where they didn't.

Cool graphics here and here.

A lot of people tell me that we shouldn't pay much attention to the causes of the Mortgage Meltdown because that was just the trigger for the global financial crash and something else would have caused it eventually. Okay, but, in fact, something else didn't actually set it off, so let's at least try to figure out what did.

When a Lockheed-built plane would crash, my dad would get a call in the middle of the night and he'd be on the 8 am flight for Italy or Miami or Fiji or wherever to traipse around in a wheat field or a swamp or a jungle for weeks picking up shards of metal (and bone). They'd lay out the metal they found inside an aircraft hanger in the shape of the airplane, like a giant jigsaw puzzle. Eventually, they'd figure out why all those people died.

Of course, that didn't stop planes from crashing. But, the more they learned from crashes, the less often they crashed.

20 comments:

David Davenport said...

Steve,

real estate ads during the buy-a-house boom gave newspapers the last advertising uptick American paper newspapers are going to have.

Of course newspaper mgmt. didn't want to pee on the real estate parade.

Anonymous said...

To extend your analogy, let's suppose that some planes have engines made from metal and some planes have engines made from plastic.

Let's suppose the plastic planes seem to crash a lot more frequently. However, everyone really really wants to believe that plastic is just as good as metal. Anyone who dares suggest otherwise risks strong public censure.

In that case, there's much less of a point in investigating the crash of yet another plastic plane. All you will do is invent some lame reason. For example, that the pilot believed plastic planes are unsafe so he was more nervous and error-prone.

Steve Sailer said...

Yes, "stereotype threat" made the pilots of plastic planes crash more often than the pilots of metal planes. Or maybe, due to invidious stereotypes about plastic planes, all the good pilots connived to get jobs with airlines that only had metal planes, so the airlines with plastic planes wound up with all the suicidal, alcoholic, retarded, and/or blind pilots.

RKU said...

Has anyone discovered what fraction of the defaulted mortgages or mortage dollars relate to house speculators rather than actual home-owner-occupants?

I'd bet it's reasonably high. After all, "underwater" homeowners tend to keep on paying as much as possible lest they lose their home. Speculators certainly don't...which is why they're called speculators.

There have been all these anecdotal accounts of heavily leveraged people with five houses defaulting, but I wonder what the actual statistics are.

Steve Sailer said...

The government keeps excellent statistics on who gets mortgages (Google the federal Home Mortgage Disclosure Act database) but the government doesn't keep track of who pays back mortgages.

I guess nobody really wants to know.

Anonymous said...

but, isn't this just the beginning? What's happening in CA now will be happening across the US.
I heard for example that condo/coop prices in NY are starting to drop. Near me (in a 'booming' part of Brooklyn) there are a half dozen super high rise/luxury condos going up, but one that is finished near me has been only 30% sold for 8 months, (i believe) and that's before people start to get layoffed and bolt.
I think the sh*t's only starting to hit the fan

MQ said...

But Steve, you don't want to figure out what made the plane crash. You want to find some way, any way to blame black people and Hispancs for crashing it. That's a different motivation.

AllanF said...

I think no small part of the problem of the clean-up being foisted on the entire nation is that the Speaker of the House is from California, and the Senate Majority leader is from Nevada. And both have personally made huge amounts of money from land development.

I think it's fair to say, had the Speaker been from Vermont, and the Majority Leader from South Dakota he would not have been subjected all these upside-down home buyer bailouts. Which is not to say Wall Street would have not gotten a decent bail-out for themselves, but I think it would have been allowed to flush out far faster and without tax payers trying to prop up every underwater home speculator.

king obama said...

Steve,

The housing bubble was going to go bust one way or another, and the longer it went on the worse the correction would be.

Home prices could not continue to go up forever at the rate they moving, even if all the immigrants to this country had been white (you seem to hint that it was the low earning power of brown immigrants that caused this crash). It would have take longer for the crash to come under the white-only senario, but it would have happened anyway.

The real problem is that people are constantly looking for above-average returns (I call it the "Gordon Gekko" mentality). People are not satisfied with "weak" or even average returns and are constantly looking for the next wave to ride. This causes bubbles. I expect that the next bubble will, as you have stated, be in green energy

Moreover, when the tech bubble went bust, investors scrambled for the next hot investment. The "easy money" policies by the Fed following the tech bubble bust made housing very attractive. In fact, it became so attractive that everybody jumped in.

The financial engineers that designed the financial models for the banks, mortage institutions, insurance companies, etc. assumed that home prices would continue to rise forever.

Furthermore, the expansion of credit of all kinds by American consumers was back breaking. Add in the massive trade deficit, and you have recipe for disaster.

Then, to top it all off, the "innovations" in financial products, like CDOs, infected the financial system and made it extremely crash prone. Any significant fall in housing prices would cause securites and other derivatives tied to housing to come crashing down.

silver said...

But Steve, you don't want to figure out what made the plane crash. You want to find some way, any way to blame black people and Hispancs for crashing it. That's a different motivation.

You're mind-reading.

If you believe that it's absolutely impossible that race could have played a role, you won't look. If you believe race matters, you'll look to see how much it mattered.

Tony Danton said...

I used to work for Brand B, one of the more successful light plane manufacturers. We made an airplane notorious for killing doctors and other such types. Management figured out the problem around 1965 and did nothing until over two decades later. They then essentially blackmailed the FAA into forcing them to fix it rather than just fixing it.

Now in this case blacks and Hispanics had nothing to do with it. But blacks and Hispanics are sort of like the real problems with this airplane. They were simply facts of life rooted in science-biology and aerodynamics respectively-and the real issue was making the company, or society, do what anyone with half a brain could see was obviously needed. In both cases powerful forces were at work-and no, at least in the aircraft company's case it wasn't Jews. It was human nature and the power structure. No one was going to come out and say they were wrong.

In the long run the company just put itself out of the market for anything but corporate jets. That is what the solution is going to be for us....they'll just make it impossible for any but the very wealthy to participate in the societal structure. We'll become 'idiotes' in the Greek sense, not through lack of interest but through lack of principal.

Lucius Vorenus said...

Brad Heath: In other parts of the country, the foreclosure wave was barely a ripple - at least until it started swamping major banks that had invested heavily in mortgages. Banking giant Wachovia Corp., for example, was hammered after California and Florida customers of one mortgage firm it bought began defaulting at high rates.

Wachovia purchased $24.2 billion in worthless sand-state mortgages from the crypto-bolsheviks, Herbert & Marion Sandler.

When the Sandlers were parodied by NBC's Saturday Night Live for their part in the fiasco, NBC's lawyers ordered SNL to remove the video from their website and to replace it with a edited version which censored the Sandler lampoon.

NBC Legal has also moved aggressively to remove the original video from popular websites like YouTube, although you can still find it in a few places around the internet [available from e.g. here as a 19MB WMV download].

BTW, having re-watched that SNL video a couple of times this morning, I have to say that it's one of the best caricatures of modern American socio-political asininity that I've ever seen [right down to the Yuppie couple with the surrogate mother/wet nurse].

I wonder who wrote it?

[It's so remarkably honest & straightforward (by the standards of our age) that it has a feeling of projection to it.]

BTW, ironically enough, NBC is owned by General Electric [the only member of the original 1896 DJIA still operating under its own name], which in turn owns a subsidiary called GE Capital, which, according to Denninger, is about turn the parent company belly-up.

Steve Sailer: One of the frustrating things about the Mortgage Meltdown is how little basic factual information, such as where it actually happened, has been conveyed to the public. That embargo is finally starting to break down... A lot of people tell me that we shouldn't pay much attention to the causes of the Mortgage Meltdown because that was just the trigger for the global financial crash and something else would have caused it eventually. Okay, but, in fact, something else didn't actually set it off, so let's at least try to figure out what did...

Since we've established that the demand side of this mess was largely caused by the governement pushing blacks & Sand State hispanics into houses they couldn't afford, can we now start to talk about the people who were responsible for this disaster on the supply side of the equation?

Is there anything about this list of names which strikes you as just a little odd?

Alan Greenspan
Ben Bernanke
Hank Paulson
Timothy Geithner
Barney Frank
Charles Schumer
Jamie  Gorelick
Robert Rubin
Herbert & Marion Sandler
Lehman Brothers
Goldman  Sachs
Bernard Madoff

Not to mention George Soros, Penny Pritzker, David Axelrod, etc etc etc.

Or is noticing this strange little coincidence going to be grounds for censorship?

PS: Anyone wanna place bets on the ethnicity of the folks who pushed AIG into $600 BILLION+ of Credit Default Swap liabilities?

Well golly gee whiz - look at what 30 seconds of Googling just produced.

David said...

king obama said

you seem to hint that it was the low earning power of brown immigrants that caused this crash

No, Steve's point is more sophisticated.

He's against unfairly favoring brown people. Through "affirmative action"/positive discrimination, the Community Reinvestment Act, etc.

Because he be hatin' on the brothers? No, because these groups have low earning power (as you put it), so skewing standards to "boost" them is destined to bite everybody in the ass sooner or later. Steve proves and reproves it. His focus is what white fools do to ruin things.

If a man hits you in the head with what he calls a featherduster and Steve proves to you that it was actually a hammer, which is why you have a terrific headache, do you get mad at hammers, or at your assailant? Do you condemn Steve for imputing original sin to the noble hammer? Or do you shake off your stupor and realize you were conned by "Mr. Featherduster" and go after him? The answers to these questions could almost serve as a quick IQ test.

RobertHume said...

It's not that blacks and browns caused the crash. It's that "leaders" of all races wanted them to own homes as much as whites.

So they got rid of downpayments, employment records, etc. for minorities.

But they couldn't stop at minorities, so poor whites got the same deal. Also speculators and other flippers.

And these bad loans were securitized, so there was no limit to how high the prices could go.

Until there was the inevitable crash. Houses could be built cheaper than those prices; and no one had the wages to support the prices.

The crash hurt most the people who held the securities at the end ... mostly whites and Asians, I expect.

The winners were those who skimmed the transfer payments, and invested the proceeds in bonds or short positions.

The poor were not really losers; they just had a better house than they ever expected to see for a short period of time.

Except they did lose because the real-estate crash has crashed the total economy.

anony-mouse said...

I'm puzzled by the behavior of sandy NM in all this. It should be doing as badly as AZ or at least TX, but on the second graphic it's sandwiched between IA and ME.

Jalapenos? Fallout?

Anonymous said...

You're mind-reading.

Political correctness not only makes you stupid, it keeps your mind on one track. Steve, not being politically correct, can move freely from idea to idea as he likes.

Here's how it goes. Some of the slower readers here think Steve has a single theory for everything: blacks and Hispanics did it.

Then, when Steve disproves it by writing about Iraqi cousin marriage, the guys with gold chains, or a middle-class-white pyramid scheme craze, they think they've caught Steve in a contradiction!

The hoped-for logic goes something like this:

Take as an axiom that Steve thinks that everything is explained by theory A.

Point out that Steve is writing about something not explained by theory A.

Therefore, Steve is contradicting himself...

Therefore (triumphant cry) theory A must be wrong!

Anonymous said...

That's impressive.

Truth said...

"Some of the slower readers here think Steve has a single theory for everything: blacks and Hispanics did it."

That's not Steve's theory on everything, that's his theory on ALMOST everything. There's a difference. I for one was quite shocked a few months ago, when Steve-O could not find the left-side-bell-curve black man who brought that hawk who terrorized his rabbits to Studio City.

Mr. Anon said...

"Lucius Vorenus said...

When the Sandlers were parodied by NBC's Saturday Night Live for their part in the fiasco, NBC's lawyers ordered SNL to remove the video from their website and to replace it with a edited version which censored the Sandler lampoon."

I've noticed that Saturday Night Live has been much more funny recently than it was the last time I saw some of it (about ten years ago). Better writers? Better performers? Getting rid of Al Franken? I'm not sure of the reason, but it does deliver more laughs than it used to.

PrestoPundit said...

Your dad had the advantage of settled and widely understood science.

Facts don't mean anything without a prior background understanding.

Biologists say that biology doesn't make sense without Darwinian biology.

The same is true of the business cycle.

The dominance of pseudo-scientific macroeconomics matters.

The resistance of people to learning the economics of Friedrich Hayek has consequences -- it makes people really stupid.