Mortgage default rates and peasants with pitchforks

In the first half of this year, borrowers defaulted on modified mortgages at rates higher than almost every estimate. According to the Office of Comptroller of the Currency statistics released today, 36% of borrowers who had their loans modified in the first two quarters of 2008 re-defaulted after just 3 months. After six months, the redefault rate was roughly 56%. After eight months, 58% of borrowers re-defaulted.

Clearly, something is very wrong with the modified mortgage programs. The homeowners still can’t afford them. But, I’m guessing mortgage brokers et al are once again making money yet again by issuing more toxic loans.

Robert Reich asks, Are we courting a populist backlash?

It wouldn’t surprise me if many of these Americans were starting to look at the size of the bailouts of Wall Street and the bailout of the Big Three — at the executives, well-paid professional employees, upscale creditors and shareholders, and even well-paid blue-collar workers, who are the major beneficiaries of this federal largesse — and conclude that a fundamental principle of fairness is being violated.

You can add to that list anyone receiving a public pension in a state where the pension is guaranteed. Here in California, public pension fund CalPERS has managed to lose $81bn in just over a year, and are down 31%. Their response to this crisis has been both comatose and arrogant. But then, the state is required by law to fully fund all pensions so it doesn’t really matter if they are incompetent.

But California is in the middle of a huge budget crisis already, even without the dimbulbs at CalPERS making things worse. Expect outrage and rising protest from broke Californians who will be saying, no to full funding of the pensions. In my opinion, CalPERS executives need to get on the clue train quickly, before they need round the clock bodyguards. No, I don’t want that to happen. Not even slightly. But it easily could.

These Americans aren’t revolutionaries. To the contrary, they’re deeply conservative. They’ve worked hard, but their hard work hasn’t paid off. Some have tried to save, only to see their savings disappear. They’re worried about the future and about their kids’ futures. They never expected anything like this.

This is the angry soil in which populist backlashes can take root.


  1. I lived in L.A. during the ’92 riots and watched on TV as streets I’d driven down many times had buildings on fire.

    Organized protests to effect political change. Yes.

    Peasants with pitchforks and angry mobs. No.

  2. “at the executives, well-paid professional employees, upscale creditors and shareholders, and even well-paid blue-collar workers, who are the major beneficiaries of this federal largesse”

    Wow? Are people really that dumb? To equate an executive, making 8 or 9 digits a year with a well-paid blue-collar worker making mid to high 5 digits a year? I don’t think so. Most people (outside of the occasional Savage listener) don’t see the worker as the issue. Most *are* workers. Normally the big financial drainers are at the top, after being placed there by people just under them to help them figure out what to do.

    The big problem with this country is “professional managers”. People that went to school to learn how to manage people, or companies, or whatever, but that never DID any of the things they now claim to know how to manage. There are some things you can only learn by doing. If you’re a manager, and don’t know the basics about how to do the job of the person you’re managing, you are by default an ineffective manager. You don’t know whats going on under you, and as such feel vulnerable, pick favorites, and look up for leadership. Despite the fact that the person above you probably knows less about whats going on than you do.

    What we need to do it get rid of the 8 layers of middle managers, and VPs of 20 different topics or sub-divisions in a company. Get back to the basics. If a company has more than 2 or 3 managers between a floor worker and the CEO, then it’s got too many layers. This is true of most of the “big names”, which is why they’re all starting to tank. Meanwhile small business is thriving, because they arn’t funding buildings full of people making 6+ digit salaries for sitting around debating what their best practices and company vision should be.

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