October 22, 2010
Tea Partiers and the Constitution
Tea Parties have a strange love-hate relationship with the Constitution.
I think they have some sort of their own version of the Constitution, just like Conservatives have their own idealized version of the 1950s or Reagan or like any of us have our own idealized memories of childhood. Sober analysis would conclude that it’s not like times were better, but perhaps it was just that we were younger.
So I downloaded the full text of the Constitution in an attempt to see where do they get their talking points. To begin, I searched for the word “religion” in the text, given the recent demand by Tea Party darling Christine O’Donnell, delivered with an air of knowing superiority during her debate, to know where in the Constitution there’s a separation of church and state. The word “religion” did come up once in the text. In the context of “No religious test shall ever be required as a qualification to any Office or Public Trust under the United States”. Further, in the First Amendment, is the following: “Congress shall make no law respecting the establishment of religion”. I have to give her that – she really did believe that there’s a mention of God or Jesus in the Constitution, because she looked like a child who just found out that there’s no Santa Claus. When her opponent quoted the First amendment it was like an unpleasant revelation to her. I hope that the first thing she did after the debate is to go and check the text to see it with her own eyes.
Many Tea Parties, without fully knowing what the Constitution actually contains, nonetheless like to throw weighty words around, especially when asked a practical question, for example how to balance the budget. You will be hearing words like “tyranny”, “Founding Fathers”, “Constitution”, “God-given rights” without actually getting an answer to your question. In fact many conservatives like to mock liberals for deriving their rights from the Government. Liberals, those spineless fucks, you see, take the rights mercifully granted to them by the omnipotent Government while the steel-balled conservatives themselves insist that all rights are God-given. They conveniently forget that the enforcement of God-given rights is still the job of the dreadful Government. Rights have to be protected and even though I would love to carry a gun around all the time in case I need to dispute, say, a claim from my insurer, I hire a Government to do that for me. Sure, they mostly suck, they tax you, they grow corrupt with time, but the alternative is a do-it-yourself Wild West. Don’t get me wrong, I, of all people, would succeed in a kill-or-be-killed setting like this, but the point is why not hire somebody else to do the enforcement job for you, while you can engage in, say, some money making or world saving? Besides, every 2 or 4 years you have a recourse against the Government in form of election. It’s amusing to hear all those yells of “tyranny” and calls to “violent rebellion” from middle-aged middle class nearing retirement who, for way too long, had a boot of Socialism planted firmly on their necks! But no more! Down with Socialism!
Funny, how I always digress in my writings. I do like to rant though, if you haven’t noticed.
So anyway, a Tea Party rally would not be a Tea Party rally without some dude in a tricorner hat waving the copy of the Constitution. But now I wonder whether they just like the original document or all of those amendments that came afterwards. If they just like the original then they would have to admit that they would repeal the subsequent amendments, like giving women the right to vote or abolishing slavery or granting citizenship to persons who are born here. Some brave and honest tea parties, like Rand Paul, would repeal the 14th amendment, for example. At least he’s honest and I give him kudos for that. I only wish that he went all the way – calling for repeal of all of the amendments, instead of picking and choosing only the ones he likes. That’s where I have a problem with the tea partiers supposed love of the Constitution. They love it but they want it changed. They imagine things to be in the Constitution that are not actually there. They choose to ignore some inconvenient articles. This problem can be solved if they just write their own Tea Party version of the Constitution. Just to give you a few highlights: Abolish federal income tax (Sharon Angle); Establish the presence of Christian God in state affairs (Christine O’Donnell, Sarah Palin); Abolish Department of Education and a right to citizenship for those born here (Rand Paul). And wave this document instead – that will keep you honest.
After watching that Christine O’Donnell video I thought that it would be funny if it wasn’t so sad. No matter how civil a society we’re bound to have citizens who have no idea what the Constitution is all about and have their own fantasies about what’s in it. But to have a public official who runs for office not to have a clue about one of the most important cornerstones of the current law, the establishment clause, is sad and even scary. It does not necessarily show her stupidity, although she’s pretty ignorant, unable to name even Roe v Wade – the mandatory pet peeve of any self-respecting conservative – as an example of Supreme Court decision she disagrees with (not because she agrees with it, but because she doesn’t know what the fuck that is!), it shows her inability to think. If she truly believed that government does not guarantee the separation of church and state, then what particular church does the government have in mind? And just to be on the safe side – to check with herself to make sure that she belongs to that particular brand of religion. Because, you know, she a Catholic after all, and Catholics used to be, shall we say, frowned upon, in the good ol’ days.
October 17, 2010
The Foreclosure Situation
Given the recent development on the foreclosure front here’s my 2 cents and a possible solution.
How can a trust with tens of thousands of individual loans in it dispute each one of those defaulted loans one by one in court? This isn’t going to happen. And it’s not because it’s too long and too costly – there are ways around that, but because trusts can’t prove that they own those mortgages, they don’t have the paperwork needed. To go forward with foreclosure en masse would mean some abrogation of the sacred contract. Also, if the house has several liens on it, as happens in most cases, the potential buyer, who’s hunting for a cheap foreclosed home can’t be 100% sure what exactly he’s buying. It can turn out that he’s going to be second in line, after the primary mortgage holder claims to own the property as these two unfortunate guys found out. I mean what reliable source or a database do you check to know what it is that you’re buying with a foreclosed home? I think foreclosure has a risk of becoming a four-letter word.
What it can mean is foreclosure market will be dead for a long time, because bargain hunters will be spooked by the legal uncertainty. In reality it would look like the whole country will be plagued by haunted houses that no one can sell, buy, move into, bulldoze to the ground and not even touch with a ten foot pole. Wouldn’t that signal that the new construction will be hot again? People have to live somewhere. Just a speculation on my part.
That’s just one of many problems. The other one is sloppy record keeping.
Even before the mortgage meltdown, the servicing industry “was plagued with problems,” such as servicers charging unauthorized or excessive fees and making false or unsubstantiated statements about how much borrowers owed, says David Vladeck, head of the bureau of consumer protection at the Federal Trade Commission, which has brought several recent cases against servicers.
I read a few articles in the past few days and to my horror I found out that no one is really insured from being foreclosed upon in this unceremonious manner, even if you’re current on your mortgage! That is because most of those small lenders that originated your loans are non-existent right now, those loans are long gone from their balance sheets into the trust without proper documentation being transferred into the hands of a new owner or lost altogether. In this case how do you prove that you paid all your mortgage bills on time? You have your records, sure, but they have theirs! Prove that your records are correct! These robo-signers are a sort of indiscriminate roulette that can pull your own mortgage out of some system purely by mistake and make you in default. “Because it says so on the computer screen” – you will be hearing when, puzzled, you call your mortgage servicer trying to clear the little misunderstanding. You will be speaking with some clueless person who will be immune to your logic and calls to reason, because I suspect they all are being trained to not understand questions for which there are no standard answers from the manual. What recourse do you really have in situation like this other than going to court?
The solution. With such clusterfuck in the foreclosure process and a high unemployment rate the solution begs for itself. Just like in early 2000s a bunch of no name lending companies popped up here and there I can see a huge market for foreclosure specialists. The business model would look like this: A small company gets a list of the prospective foreclosures from the trust or from the sponsoring bank and hires high-school drop outs for $10 an hour to phone the properties on the list. If somebody still lives there and pays mortgage or at least is working out a payment plan – those get dropped from the FC process. If no one answers the phone, the bank is given the green light to proceed with the FC. I mean this is a rough idea, perhaps those employees have to do visits to the property and follow some guidelines, etc. but you get the idea. Then they send the updated list back to the bank, which, in turn, proceeds with the wholesale robo-signed foreclosures. It’s a sort of quid pro quo: if banks want to speed up the process and bypass the paperwork requirement they have to pay to make sure that no current homeowners end up on the list. Isn’t that a reasonable requirement? This way we kill many birds with one stone: the FC proceeds at a reasonable speed (not as fast as it is right now, but not as slow as it would under the judicial review); a bunch of unemployed people get jobs (and maybe, as a positive side effect, even pay their own mortgages); politicians can move on something else, like fighting socialism – everybody’s happy. I think even Republicans can support something like this – after all it’s good for business.
October 5, 2010
ABS East 2010. Time of disconnect.
The annual securitization industry conference has just concluded in Miami. I attended it mostly due to gracious gesture of my former colleague who got me a free pass at the very last moment. Since I’ve been out of industry for a year I had to get current on recent developments. My second reason for going was anthropological, of course. I wanted to get a general feel of the market participants.
I will get very specific with terms during my observations, but I will make the best effort to explain terms to the uninitiated. This is not, after all, a financial blog.
But first things first. The biggest topic of discussion and concern at the conference was government and legislative actions. After attending a few panels and listening to speakers from different camps I came to sad conclusion that Wall Street, Government and regulatory and legislative bodies are a beast with more than two hands and naturally neither hand knows what the other is doing. First, let me describe the participants. Each panel consisted of specialists in that particular area of expertise. If it was a regulatory panel – there were people from some government agencies, FDIC, OCC, etc. If it was a research panel – it had a bunch of analysts on it, and if it was a traders’ panel – you guessed it! Normally, at this sort of conferences, I would just skip the lectures all together and hang out by the pool or at the bar with salespeople, but this time I wanted to make full use of the conference pass acquired through the kindness of others. I had to go listen to the panelists in order to refresh my memory on things and get the feel on the state of current affairs. So the uncertainty about legislative maneuvers was on everybody’s minds. Because this is not a specialty industry publication and it’s not even a market blog I will not delve into the specifics about deals and bonds performance. (Those who are interested to know about trade ideas can ask me specifically, but being in a generous mood I put a few at the end of the post). I will try to make it into a 3d party observation from 10,000 foot view.
“It’s not the product, it’s the macro.”
October 2, 2010
Wall Street and Charity
Still Stuck in Denial on Wall Street
This article in today’s NYT stirred old memories and current sentiments. And you know how much I like to write about Wall Street, so here it is.
First a disclaimer: I love Wall Street the same way I love a casino. It’s Disneyland for adults, it’s a fun place to be. It’s like a sandbox with geeks, bullies, jerks, alphas and omegas making toy trades.
I decided to explore why it is so hard for guys on Wall Street to see themselves as villains or at least to be honest about their role in the crisis. They still insist they are the good guys who are being unfairly treated by Obama. Beaten like a piñata for no reason.
I remember how at the very beginning of my Wall Street career I tried to justify my work to myself, give it some meaning, although I was unable to explain what it is that I do to folks back home. Then after some time I gave up the idea that I’m doing socially useful work, even marginally. But I knew what I was doing and I didn’t pretend to be someone that I’m not. I was there for the money, I was no longer under the illusion that my occupation will somehow make the world a better place. Money is what makes young ambitious kids endure long hours jerking off stupid spreadsheets, when their peers are actually feeding the hungry in Africa or teaching kids in Harlem. But then, after a few years something starts to bug them. They start thinking: it would be nice to make all that money and actually see the results of your labor that have made a difference in society, a change for the better. (Notice that here I’m giving them the benefit of the doubt. I award them human qualities. I truly believe that people genuinely feel the need to voluntarily share the reasonable part of the windfall with less fortunate at some point in their lives. But someone who proofread this story for me felt that charitable impulses are to be displayed strictly in public, checks to be written when cameras are clicking, otherwise what’s the point? But that person is a hopeless cynic.) Wall Street loves to participate in all kinds of charities, fund raisers, etc. It is hard for any individual, even a Wall Street type, to see himself doing something that lacks meaning. It is important for a sane person, especially after he made tons of money, to feel like he’s making the world a better place. And since he could not get other than only monetary fulfillment at work he either a) gets active in charity or, if he’s a sociopath, b) keeps clinging to the belief that he’s a nice guy who helps small businesses get funding and keeps the economy going. You know, it’s nice to make all that dough and be seen as a nice, caring, charitable person who helps little neighborhood cupcake bakeries get capital by day and donates money to special needs children by night via industry social. All right, I won’t question the motives of bankers who do charity in this post, I will assume they are doing it from big heart and generosity. I’m simply questioning their approach to their primary profession. And I think the answer is that for some it’s hard to admit that creating and trading mortgage-backed securities and credit default swaps did not really fund that cupcake store down the street.
Now, if you think that I’m writing this to pile up on greedy bankers you’re wrong. I have no problem with bankers being greedy and conniving and shrewd. If they weren’t then there would be no money to be made. That’s their business, that’s what they do. If they want to feel good about themselves they should donate to charity and that’s that. But I don’t want them to pretend that what they are doing during the day is noble. My problem with Wall Street is that they still see themselves and insist on everyone seeing them as innocent sheep. Does that guy in the article, Anthony Scaramucci, honestly believe that what he’s doing is simply helping small businesses get financing? He’s either naïve, which I doubt, or he finds himself in the position where admitting to himself that all these years he participated in the biggest fleecing of America would make his head explode. I think guys like him have no avenue, other than charity, to make them feel good about themselves. I find it disingenuous when they pretend to be nice and fluffy vegetarians who get pushed around by big and nasty Obama. All I want them is to acknowledge that this is what they do, they eat what they kill, and not hide under the ‘nice guy’ guise. As you probably inferred from my writing is that I’m in the “no illusions about what we did” camp. What we did, what I did wasn’t nice. It was fun, though, it was breathtaking at times, frustrating at other times, but it was never boring. I too gave money to charities, partially because I genuinely felt the need to share and partially because I got to dress up and socialize and have drinks and nice dinner. I know. (You see, I come from a humble, plebeian background – free food, or at least that’s the way I looked at it after I wrote a check, can still be a factor for me to attend any event). At least I’m honest about it, and a guy like Scaramucci isn’t. Before you protest and call me names answer this one question to yourself: Would you do your job for $50,000 with no bonus? Would you be a quant, a structurer, a trader, a salesperson or a spreadsheet whacker if that was the pay? Or would you rather go work for the UN or be a teacher for $50K?
So go and make your money the shrewd way, give to charity to make yourself feel better but please don’t pretend to be a Ghandi. And if you feel like you’re being beaten like a piñata, take it as a man. Many millions of unemployed and those who lost everything would love to be beaten with that kind of stick.
