September 9th, 2007

fashionable

Real Estate Speculation Drives the Subprime Crisis.

I discovered a few interesting tidbits in a recent article on the subprime / foreclosure crisis that point towards real estate speculators being a much bigger part of the problem than I would've guessed.

Apparently, California, Florida, Nevada and Arizona have more than a third of the nation's subprime adjustable-rate mortgages and a third of the foreclosure starts for these loans. These four states also have a disproportionately high share of investor loans or loans to buyers who do not plan to live in the houses. 

As of June 30, the non-owner-occupied share of loans in default -- 90 days or more past due -- was 32 percent in Nevada, 25 percent in Florida, 26 percent in Arizona and 21 percent in California. That compares with 13 percent for the rest of the nation. 

This is just a tip of the iceberg, however, as in many cases, real estate speculators have used subprime loans to purchase a larger second home as a primary residence, while renting out their first house. This real estate technique relies on the primary residence exclusion on capital gains tax, where home owner / investors rent out their first house, while moving into a piece of investment property for no less than two years. At the end of that period of time, they can then legally sell the property without having to pay ANY taxes on the gain.

As a result of the primary residence exclusion laws, only those investors who previously owned MORE THAN TWO houses would have any real incentive to use subprime loans to purchase a house that they didn't live in. Instead, most real estate speculators would choose to use a subprime loan to secure a second house, with the goal of avoiding paying any taxes on the gain, ideally flipping the house before the interest rates on the loan reset to a higher level.

Unfortunately for many such investors, they are now finding themselves paying higher rates on their mortgage, stuck with a house that hasn't appreciated in value, trying to sell them in a marketplace overcrowded with sellers, and with fewer potential buyers due to stricter qualifications and higher interest rates for mortgages. In some cases, they are finding themselves with negative equity, as prices have started to drop.   

This kind of real estate speculation was pretty obvious in California a few years back, as shifting savings from stocks to real estate seemed like a safe bet in the wake of the dotcom crash. In large parts of California, real estate prices surged due to rampant speculation, even as high-paying, high-tech wages fell, unemployment increased, and local economies worsened noticeably.  

In short, it's reasonable to assume that real estate speculation may, in some key states, be the cause of over 50% of subprime foreclosures.

It's no wonder that so many politicians are pushing for a bail out; they get to help their wealthy constituents who stand to gain by preventing the bubble from bursting -- private investors, lenders, Wall Street investors, the real estate industry, the construction industry, etc. They also get to look like concerned politicians trying to help their local constituents at the same time. 

It's perhaps not surprising that none of the proposed bail-out programs being suggested by politicians specifically target those who really need assistance -- those who own ONLY one property, which they use as their primary residence. The lower middle class/soon-to-be poor don't contribute to politicians... the speculators do.  

fashionable

The state of the world's media: Unforgiveable.

There is a tempest brewing within the British media, starting when Channel 5 banned the practice of "noddies", wherein well-known TV anchors are videoed making "nods" and asking questions to interviews they couldn't do personally due to scheduling conflicts. Britain's Channel 5's hyping of their new "no noddies" policy now appears to be turning this relatively commonplace media practice into a minor scandal in the British media.

That said, for such a supposedly scandalous activity, there are plenty of prominent people in the British media who openly admit to this practice, and, infact, defend it. Indeed, The Guardian writes Channel 5's behavior off as "a rather heavy-handed attempt to win back the trust of viewers."

Which makes me think... For something supposedly scandalous, there's not very much denial going on, is there?!

Indeed, someone within the BBC has gave a statement, saying ""Everybody does it - it is a universal technique. . . Does this change the meaning of what you are doing, and the answer is no it does not."

So, it frustrates me to see one of my favorite British journalists, Adrian Monck -- formerly associated with Channel 5 -- referring to this openly admitted practice as "unforgiveable" .

Monck comments that "there can be artifice without deception, but only by negotiation with the audience."

But Adrian, I don't remember anyone in the media negotiating with me on how it does its job. The media is a sausage factory that produces tasty bite-sized pieces of artifice, often tainted with sometimes lethal doses of deception! People like to eat sausages, but very few care to see how they are made.

No. "Noddies" aren't scandalous. They're tacky... and often transparently bad, ugly, and obvious.

How obvious? Let's find out!

Did you, as a viewer, every suspect that the practice of "noddies" existed before reading this post?

Yes.
36(80.0%)
No.
9(20.0%)

Which of the following best describes your feelings for "noddies"?

Unforgiveable.
0(0.0%)
Scandalous.
4(8.9%)
Somewhat sleazy and regrettable.
34(75.6%)
A useful media tool, if done responsibly.
6(13.3%)
Useful, and not worthy of any serious attention or oversight.
1(2.2%)


From my point of view, "noddies" are not "unforegiveable", as described. Rather, they are merely regrettable and distasteful.

They are among a slew of media practices that I find to be tasteless and worth chucking, but they are certainly no worse than having the people who write headlines of news stories being different than the people who do the actual reporting. Oftentimes, I notice sensationalized / oversimplified headlines state things that simply defy not only reality, but also the article itself... and yet, the public will remember the headline and be deceived, regardless of whether they truely read the article or not. In my opinion, headlines should be a collaborative process between the reporter and an editor, with both having the power of veto, and, if needed, the right to bring in a third-party -- ideally appointed by the reporters themselves -- who specializes in deciding media accuracy issues. Why? Because, by and large, reporters know the true essence of their stories best.

To me, the current practice of crafting headlines is often a form of deception, and yet, I don't remember anyone in the media ever negotiating with me on it, revealing their process to me, or seeking my opinion. Rather, I and others in the public have to accept such practices, because that is the way the media chooses to conduct itself.

So, while I think it's generally a positive thing for the British media to scandalize its unseemly practices, it's unfair to the public and ultimately unwise to think that they somehow don't sense that these -- and other -- "unforgiveable" media practices are occurring routinely.

"Don't you think "unforgivable" is a bit of a stretch to this "cut-away crisis"? The crisis, frankly, seems largely manufactured. It's certainly done widely in the U.S. as well.

As a viewer, I find the practice kind of tacky, in that it claims to help "narritive flow", but serves to promote well-established news celebs at the expense of those who aren't well known. But scandalous? That's a reach.

So, what does the media do I find to be the most scandalous, then? How about the fact that it blindly reports government or military claims of dead enemy combattants as fact, while downplaying and simply not investigating reports that huge numbers of these so-called Taleban are Afghani civilian, or, simply, the Afghanis themselves.

There have, most likely, been over 800,000 dead Iraqis and Afghanis so far, with over a million who are now refugees. Where are the personal stories from the effected families in our media, who have been forced to flee their homes and are now refugees? Why are we not routinely faced on a very personal level with their feelings, thoughts, grief, and, ultimately, their humanity? This, to me, is scandalous media behavior.

Or maybe it's scandalous when the media parrots Bush administration reports about weapons and fighters coming into Iraq from Iran, when other far-less-emphasized data from our military indicates that far more of these foriegn fighters -- and the funds used to sponsor them -- have been shown to come from our "ally", Saudi Arabia.

Or maybe it's scandalous when the media fails to point out the hypocrisy involved in accusing Iranians and Syrians of letting weapons and enemies come through their borders, when the U.S., with billions to spend on security, can't even secure their own far smaller border between California and Mexico, which is a haven for trafficking drugs north, and, oftentimes, guns south on the way back. The Syrians, who are, by any reasonable estimate, a very poor country, have constructed a huge berm along their border to prevent people crossing their border... and yet, back in America, we can't manage a simple fence, and couldn't secure it, even if we wanted to. This, to me, is scandalous and irresponsible reporting by the media.

Or perhaps it's scandalous when the media fails to note that the International Atomic Engergy Association generally accepts that Iran is fully in compliance with all of its required obligations and that it has satisfied their concerns related to possible plutonium enrichment, and agrees with Iran that they, infact, has every legal right to refine uranium to generate electricity, despite what the Bush administration -- which is actively developpng new nuclear weapons systems in violation of their international commitments and, therefore, in violation of the U.S. Constitution -- says. Again, it's irresponsible.

To me, it's far more scandalous when the media routinely "noddies" the world towards future military confrontations and sometimes lethal sanctions, while ignoring the fact that we're leveling and largely depopulating major cities in Iraq and Afghanistan. Likewise, it is irresponsible for the media not to note that one of the major reasons why violence is decreasing in Baghdad is because the Sunni population of that city has largely been ethnically cleansed, with record levels of Iraqi refugees leaving the country, despite a "surge" that supposedly is providing them security. Instead, it is essentially providing cover for acts of ethnic cleansing. That, to me, truely is something unforgiveable.


All these horrors exist within the media, seriously undermining their credibility, and the issue that the media is latching on to are "noddies"?! Clearly, it's time for a reality check.