Friday, March 28, 2008

Instead of just blaming the victims for the mortgage crisis, how about also looking at tax policy?

In regard to the mortgage crisis, it's easy to point fingers at "irresponsible" home buyers. Just ask John McCain. However, our vast nationwide credit binge was decades in the making and involved a lot more than reckless home buyers. The mortgage crisis has many causes and was fueled by all segments of the financial industry and its regulators. In what seems like a classic example of the law of unintended consequences, at least a part of it also involved tax policy.

More than 20 years ago, Congress took steps to end the tax deductibility of consumer interest. The Tax Reform Act of 1986 phased out the deduction, ending it entirely in 1991. While it was a revenue enhancer for the feds, you could also make a case that it was good social policy. The U.S. already had one of the lowest savings rates in the world. The least the government could do, went the thinking, was stop subsidizing borrowing.

The trouble was, Congress left a huge loophole, one that spawned a whole new industry, a loophole that helped facilitate the country's incredible credit binge of the last two decades. Residential mortgage interest retained its deductibility, and home equity mortgage lending took off, as homeowners rolled more and more consumer credit -- especially car loans -- into home equity loans.

There were skeptics at the time who said it didn't make much sense to pledge your home against depreciating assets like cars or other consumer ephemera. Others pointed out that encouraging the conversion of home equity into debt threatened the last form of saving practiced by many Americans. But buoyed first by inflationary increases in home prices and later by easy credit, the market boomed. It was a nearly universal "win-win" -- lenders made money, sellers made money, buyers repeatedly "cashed out" their equity gains. Financial perpetual motion seemed to have been invented, and few noticed its resemblance to a national Ponzi scheme. After all, houses always increase in value, don't they?

Now the chickens are coming home to roost, flocks and flocks of them. Americans now owe an incredible $1.1 trillion on home equity loans according to the NYT, which notes that banks worry they may not get all of that money back. It turns out that the loans have a double impact on the mortgage crisis, because: 1) Many of the loans are themselves going bad, and 2) Home equity loans make it more difficult to deal with an underlying troubled mortgage, either by renegotiating or selling.
It is a remarkable turnabout for the many Americans who have come to regard a home as an A.T.M. with three bedrooms and 1.5 baths. When times were good, they borrowed against their homes to pay for all sorts of things, from new cars to college educations to a home theater.

Lenders also encouraged many aspiring homeowners to take out not one but two mortgages simultaneously — ordinary ones plus “piggyback” loans — to avoid putting any cash down.

The result is a nation that only half-owns its homes. While homeownership climbed to record heights in recent years, home equity — the value of the properties minus the mortgages against them — has fallen below 50 percent for the first time, according to the Federal Reserve.
This is going to get really ugly before it gets better.
In places like California, Nevada, Arizona and Florida, where home prices have fallen significantly, second-lien holders can be left with little or nothing once first mortgages are paid.

In December, 5.7 percent of home equity lines of credit were delinquent or in default, up from 4.5 percent in 2006, according to Moody’s

Lenders and investors who hold home equity loans are not giving up easily, however. Instead, they are opposing short sales. And some banks holding second liens are also opposing refinancings for first mortgages, a little-used power they have under the law, in an effort to force borrowers to pay down their loans.
None of the major proposals to help homeowners wtih delinquent mortgages really addresses the problem of home equity loans. With the economy sagging into recession, those delinquency rates are going to keep rising. Probably not what Congress had in mind in 1986, but it's where we are now.

Thursday, March 27, 2008

Finally winter wimps out

Just a Dusting
Madison's spring snow today was not the several inches predicted earlier, but a mere dusting, just enough in some spots to make the remaining patches of dirty snow briefly look white again. Outlying areas got a bit more, but for the most part, the 0.4 inches recorded in Madison melted as soon as it hit the ground. Winter's little encore was so ineffectual as a demonstration of its awesome power that it almost made one nostalgic for a real snowstorm. Almost.

After all these years, is the Bush administration's Pakistan policy finally coming unstuck?

Pakistan's newly elected government was sworn in this week, with a new prime minister and cabinet leaving President Musharraf increasingly isolated and losing control over key appointments in the military and intelligence agencies. According to the Washington Post, it's no coincidence that the U.S. is stepping up its controversilal Predator strikes in the tribal regions.
The United States has escalated its unilateral strikes against al-Qaeda members and fighters operating in Pakistan's tribal areas, partly because of anxieties that Pakistan's new leaders will insist on scaling back military operations in that country, according to U.S. officials.

Washington is worried that pro-Western President Pervez Musharraf, who has generally supported the U.S. strikes, will almost certainly have reduced powers in the months ahead, and so it wants to inflict as much damage as it can to al-Qaeda's network now, the officials said.

Over the past two months, U.S.-controlled Predator aircraft are known to have struck at least three sites used by al-Qaeda operatives. The moves followed a tacit understanding with Musharraf and Army chief Gen. Ashfaq Kiyani that allows U.S. strikes on foreign fighters operating in Pakistan, but not against the Pakistani Taliban, the officials said.
The Post's rather myopic coverage of the strikes only mentions in passing the sudden visit to Pakistan this week by Deputy Secretary of State John Negroponte and Assistant Secretary of State Richard Boucher to meet with Pakistani officials. In a post titled "A Failed Mission to Pakistan," Bernhard at Moon of Alabama provides more information, along with lots of links to Pakistani and other alternate sources, but also a blunt assessment.
In what looks like an emergency mission, Deputy Secretary of State John Negroponte and Assistant Secretary of State Richard Boucher yesterday descended on Pakistan. Reviewing Pakistani news sources, the mission seems to have failed.
Check out the post and the comments. It looks as if Musharraf's days are numbered, and since the administration put all its Pakistani eggs in one basket, the same seems to be true of a cornerstone of their GWOT policy. Just one more way that events elsewhere in the world continue to affect the U.S. while most of us don't even notice, distracted as we are by the media circus that passes for coverage of the presidential primaries.

Tuesday, March 25, 2008

Are bats the new canaries?

Sad story in NYT's Sciince times today. Bats are dying mysteriously, in large numbers, in New York and neighboring states.
In what is one of the worst calamities to hit bat populations in the United States, on average 90 percent of the hibernating bats in four caves and mines in New York have died since last winter.

Wildlife biologists fear a significant die-off in about 15 caves and mines in New York, as well as at sites in Massachusetts and Vermont. Whatever is killing the bats leaves them unusually thin and, in some cases, dotted with a white fungus. Bat experts fear that what they call White Nose Syndrome may spell doom for several species that keep insect pests under control.

Researchers have yet to determine whether the bats are being killed by a virus, bacteria, toxin, environmental hazard, metabolic disorder or fungus. Some have been found with pneumonia, but that and the fungus are believed to be secondary symptoms.
Your heart can't help but go out to our insect-eating friends whose numbers are being so brutally decimated. You also have to be concerned about the environmental impact, since bats play such an important role in natural pest-control.

Maybe the bats are dying of an infectious agent specific to their species, but maybe not. You can't help but wonder -- are the bats providing an important early warning of a more widespread environmental problem? Perhaps, like the proverbial canary in the coal mine, they have an unusual sensitivity to some unsuspected environmental pollutant that might eventually affect us all if left unchecked.

Traffic calming island or "gotcha" device?

"Traffic calming island" is such a soothing word. It evokes a philosophy of thoughtful traffic engineering saving careless drivers from themselves by gently restricting their options in such a way that they can't get into trouble and hurt themselves or others.

The real world is different. All too often these devices seem designed less to calm traffic and keep drivers out of trouble than to punish drivers when they do get into trouble by making their situation even more dire and dangerous. It's like using "gotcha" as a principle of traffic engineering. Sometimes there's even a possibility of innocent bystanders being hurt during the "gotcha" moment.

This is an example that particularly bugs me, perhaps because I drive by it so often. This island is asymmetrical, with more than half jutting out into the southbound lane of Glenway Street on the near west side of Madison. To really get a sense of what's happening here, you need to know that Glenway runs downhill from Mineral Point Road to Monroe Street. Most of it is a straight, unobstructed run down a gradual slope alongside Glenway Golf Course, lulling many drivers into exceeding the 25mph speed limit. The average speed seems to be about 35 mph, and the occasional driver goes much faster, since there's often not much traffic.

Aside from the usual problems of speeding in a residential area, there's another hazard lurking up ahead for the southbound driver. The roadway suddenly turns into a steep, winding plunge down to Monroe Street, including a tight decreasing-radius downhill turn. There's also a bicycle/pedestrian crossing, followed by another marked pedestrian crossing right after that turn. The marked speed limit is 15 mph, for good reason. The problem is getting drivers to pay attention to it.

I sympathize with the objective, but this seems an odd way to go about it. This island comes right after that tight turn. Drivers who go into it too fast will be fighting for control all the way around the turn, and then, just before the pedestrian crosswalk, they will have to suddenly veer around this slightly elevated obstacle -- or run over it, which also could add to their control problems, especially when there's snow or ice on the road. Whenever I pass this combination of traffic island and pedestrian crossing in the winter, I imagine a speeding car encountering this obstacle, trying to swerve around it, and skidding right into a pedestrian standing at the edge of the crosswalk. That really would be a "gotcha."

This isn't a problem for locals who frequently drive this way and are used to slowing down. But this traffic calming island isn't really for them in the first place. For drivers who need to slow down, it's too little, too late, and potentially hazardous as well -- in other words, more about driver punishment than traffic calming.

Monday, March 24, 2008

What it's all about

What It's All About
I was driving along, listening to NPR's Talk of the Nation, marveling at how the war machine just keeps humming along on its seemingly inexorable course after U.S. fatalities hit the 4,000 mark. A heart-broken father who lost his son called in, his voice trembling with rage at Bush and Cheney. Taking Bush and Cheney's words at face value, his son had volunteered to help find those non-existent weapons of mass destruction and paid with his life. His father accused the two leaders who had avoided Vietnam service of all too casually starting their own war. Before the caller's rage could really register, host Neal Conan smoothly moved on to more upbeat calls about lives lost but not wasted.

That's when I saw this reminder of what it's all about. Don't take my word for it. Read Alan Greenspan's book.
"I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil."
We don't just pay at the pump.

Sunday, March 23, 2008

Easter can take many forms in our variable climate. Take Madison's Wingra Park, for example.

Wingra Park, Easter 2008
Kind of speaks for itself, doesn't it? This is why the Midwest is known for its highly unpredictable and notoriously variable spring weather. Two years ago, Wingra Park was green and drowning in rain on Easter. This year, not so much. And, yes, with the fraction of an inch that fell in the evening on Easter, Madison did break the 100-inch total for the season -- more than double the average. The winter that just won't end (more coming this week).