patrick.net

DennisN,

I misread that as "...BITTER and CLINGING to our guns, GOLD, and dislike of swarthy foreigners"

Swarthy foreigners, hmm, you mean southern Italians?

And if wheat crop failures due to drought in Australia aren't bad enough....

www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/24/MN9B10AM8Q.DTL

We had three days of overnight frost here in Boise last weekend - the end of April - and it is feared the cherry and apricot crops are ruined. We shall see. The buds on my apricot tree are questionable right now, and I think I lost one of my ornamental grasses.

Oh my goodness, Obama just lost the Italian vote.

We had three days of overnight frost here in Boise last weekend - the end of April - and it is feared the cherry and apricot crops are ruined.

Frost? Must be "global warming."

In a few years, they will be talking about Ice Age again. I can already visualize them propagandizing with photographs of polar bears freezing to death on newly-created ice sheets.

Dennis, were you serious on your suggestion about repossession tranches?

Local government around here is strapped, and it got itself addicted to the inflated assessments of recent years.

Do the tranches pay property taxes on the foreclosed houses? If the owners of the tranches don't pay it, then how does the government get the money? Does the government take the house away from the tranch and then auction it?

Dennis,

This week a local news station reported millions of dollars worth of crops were ruined in the wine country because of the April frost there.

Dennis, your idea makes a lot of sense. I like it. :)

(Unfortunately, it makes too much sense because it forces people to face reality. Moreover, many home-"owners" cannot even afford Z-grade housing and they rightfully belong to the jealous bitter renters group.)

Dennis, what will you do with the A-tranches? Assumedly that housing is too expensive for everyone who got foreclosed. Now we've just concentrated all the loss in a few single big assets which might have a very small addressable market.

On the other hand, maybe it's easier to sell just a few big properties when the market comes back, instead of a vast and motley distribution of REO.

Brand,
Yes that's the point - it would be better to have relatively few expensive places as REO or GORE than be stuck with all of those units. I'm just proposing an orderly "push down" for the majority of those houses.

I don't think anyone has really gotten their head wrapped around the concept of hundreds of thousands of REO and GORE sitting empty and decaying from vandalism and lack of maintenance.

From a strictly financial perspective such a cram-down plan is sound. Unfortunately it is impossible due to primarily legal reasons.

* There is no uniform foreclosure regime. That falls squarely under states-rights, and some states themselves delegate to the counties/cities/parishes.

* The Fed gov't probably cannot assume rights over foreclosures without a constitutional amendment. Especially given the current Supreme Court.

* Even on a local basis, it is questionable whether any government or private body would have the right/ability to enforce such a plan. I'm not worrying about the voluntary participant of the distressed homeowner, but instead of disagreeing third parties. For example, reinsurers, recourse debt holders, politically motivated advocacy groups...

And then I ask the most basic question of all: why not just let the market work? I realize there will be a lot of vacant houses. But the market is the best allocator of resource. Most of those empty houses *will* be recycled in one way or another at a price. If houses got overbuilt in shitty areas, then that price might be low enough that a landfill company buys them, knocks them down, and opens a landfill. Most of the others will just end up with a new set of owners.

Yes, there will be collateral damage. Old granny who's lived in the neighborhood for 40 years, paid off her home, and did nothing wrong. Now the 60% outburban sprawl constructed in the past 6 years sits empty and crack dealers rule her neighborhood. Well, life sucks. Granny should stop listening to the AARP and pay attention to whom she blesses with her vote. Granny should move, and tell her grandbabies stories about how terribly the Great Housing Bubble destroyed the hopes and dreams of an entire generation. Maybe then the bubble-culture will be lessened, instead of just covered up by yet another well laid plan.

Well the Constitutional issue is an interesting one. Art. I Sec. 8 reads in pertinent part "The Congress shall have the Power ... To establish ... uniform Laws on the subject of Bankruptcies throughout the United States." It would appear plausible that foreclosures are part of the "subject of Bankruptcies" although I haven't researched any case law (if any) on this issue.

I think we are going a little far on the notion of the magnitude of vacancies and vandalism. Some areas are very hard hit. Older areas with poor job prospects. I have heard some amazingly bad stories in Ohio and Michigan. But mostly people begin to pick off properties once it makes sense to be a landlord, and eventually vulture firms will buy up large numbers of places if they are rentable/recoverable/convertable.
I still see the most probable outcome is that the government will outright buy as many of the mortgages that investors are willing to finally give up as a large loss (70 cents on the dollar?more?) then they can do whatever they like for workouts and cramdowns because they will own the paper.
In the end the taxpayer will foot a pretty large bill and, for a while, there will be large feelings of inequity.
Distracting us from that complaint will be complaints of the inflation we created to soften and slow the credit crunch. Looking for a scapegoat for inflation we will blame Big Oil (the market has already punished the financial sector).
I am more and more of the opinion this can take 7 or more years to work out, in which time (on average) most people will have sold their homes and moved - further distancing the feelings of inequity on the cram-downs.

I hold a pretty dim view of the potential for real reform until we change the way we elect our leaders. Popularity contests amongst the sound-bite crowd willing to have their personal lives scoured by the media is not a recipe for good leadership.

Duke Says:
I am more and more of the opinion this can take 7 or more years to work out

After my post yesterday (8:05 AM), I did a little more digging through the numbers for new-home-sales.

Operating on the theory that the peak-to-trough fall in this metric is roughly indicative of the length of the recession in months, my back-of-envelope calcs show that the official recession itself would last about 9 quarters this time!

Instead of using raw sales numbers, if I used percentage drop from peak (the % drop looks a little less severe because the peak was so high), it still pencils out at about 5 quarters - which is roughly what the 1982 recession was.

Again, this was just for kicks - I could point out a few flaws in this myself, so don't take it as a reliable prediction.