One of the least attractive features of human personality is the tendency to focus on something for a very short period of time, and then move on to the “next big thing”. We seem to have this ability to get incredibly interested in an issue – arguably titillated by it – and then, shortly thereafter, we forget.
Remember the first O.J. Simpson trial? Researches actually were able to detect a slight drop in the Gross Domestic Product while people who should have been working were watching the trial on TV. Then he was acquitted and everyone moved on to something else.
Americans are generous, as we witnessed with the outpouring of donations to the Red Cross after disasters like Hurricane Katrina. We also get emotionally involved, exemplified by humanitarian crises like the ongoing tragedy in Darfur. People were once quite supportive of the relief efforts there, but not so much anymore. Today it’s just another tired story that people don’t want to hear anymore. The crisis there is just as bad, but the public just isn’t interested anymore. It’s old news.
We have seen this some problem manifested in the media coverage of economic news in the current economic crisis. For while it was all about mortgages. That is where it started and it was news. No one had heard about this before. First we had the implosion of companies like New Century. Every morning you could go check the Implode-O-Meter to see the latest count of mortgage-related companies that had imploded. When I first started looking at it, the count was 23. Now it is 327 and, I might add, no one seems to care any more.
What happened here was a media-driven firestorm that was spurred on by the use of terms like “subprime mortgage.” Those words have an emotional effect different from “loans to previously underserved markets.” What made it all the more juicy were the tales of 20-something loan officers making million-dollar commissions while shoving unqualified borrowers into over-priced homes using toxic loans the borrowers could not afford. That was a prescription for disaster, although back then no one could conceive that the final dimension of the problem would be a global financial meltdown.
During the height of the coverage there were four or five stories about the mortgage crisis in the newspapers every day. Some were sober analyses and some were tawdry; others were blatantly sensational. But the public has a limited appetite for such news. You can only read about stories about another 100,000 homeowners losing their homes to foreclosure until the numbers blur and people stop paying attention.
As a result, the public has moved along to other economic disasters: the crash in property values in over-heated markets, the decline in the stock market that saw trillions of dollars in peoples’ 401(k)s evaporate. Next we had the bloodbath on Wall Street with collapse of Lehman Brothers, Bank of America’s purchase of Countrywide and Merrill Lynch, J P Morgan Chase’s purchase of Washington Mutual, Wells Fargo’s purchase of Wachovia, and the failure of IndyMac Bank. All of that was news – at least for a while.
Next our attention shifted to Bernie Madoff and the largest Ponzi scheme in history with something like $50 billion of wealth wiped out. Then we moved on to executive compensation – senior executives in financial firms who paid themselves upwards of $18 billion in bonuses even as their companies imploded.
As of early February 2009, it seems as if the newest crisis du jour is the economic stimulus package that is being run through Congress.
It is not clear whether this package includes something to help individual homeowners avoid foreclosure. Personally, I think that ought to be at the top of the list because that is the only way we are going to stem the flow of foreclosed properties onto the market. The existence of too many foreclosed homes in any area creates further downward pressure on the rest of the market.
The other borrower-friendly feature in the proposal, the one that would have allowed bankruptcy judges to modify home mortgages, has bitten the dust.
Will the public debate ever get back to talking about mortgages and housing? I sure hope so, because I do not see how we can get out of this mess without restoring health and confidence to the lending market. To achieve any progress, we need to have a meaningful dialogue about it.
It’s easy to point fingers at executive compensation, where you can show executive’s pictures and describe how much they got paid. You know the audience will get incensed seeing a few people being unjustly enriched when so many others are suffering from foreclosures and unemployment.
It is much harder to understand the current mortgage situation because it is so diffuse. Who is the ultimate owner of a loan? Who services the loan? What authority do they have to renegotiate loan terms? Who wrote the credit default swap on the contract? Is that company still viable? What is the value of the loan portfolio?
Those are very difficult questions, and answers are exceedingly difficult to come by. As you know, the press does not typically have correct answers to complicated questions. Stay tuned. Hopefully the crowd and the media will turn its attention back to mortgages and housing in the near future.
- Randy Johnson
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