Thread by @doctorow

The tacit contract between the @WSJ and its readers is: ideology on the editorial page, reality in the news pages. Money talks, bullshit walks. Reality's well-known anticapitalist bias means hewing too closely to ideology will make you broke, and unable to push your ideology.

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If you'd like an essay-formatted version of this thread to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

pluralistic.net/2023/06/04/vul…

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That's why the editorial page will rail against "printing money" while the news section will confine itself to asking which kinds of federal spending competes with the private sector (creating a bidding war that drives up prices) and which kinds are not.

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If you want frothing takes about how covid relief checks will create "debt for our grandchildren," seek it on the editorial page. For sober recognition that giving small amounts of money to working people will simply go to reducing consumer and student debt, look to the news.

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But *WSJ* reporters haven't had their corpus colossi severed: the lobe that understands economic reality crosstalks with the lobe that worship the idea of a class hierarchy with capital on top and workers tugging their forelacks. When that happens, the coverage gets *weird*.

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These second mortgages - often in the form of #HomeEquityLinesOfCredit (#HELOCs) - date back to the subprime bubble of the early 2000s.

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As housing spiked to obscene levels and banks figured out how to issue risky mortgages and sell them to suckers, everyday people were encouraged - often tricked - into borrowing heavily against their houses, on complex terms that could see payments skyrocket down the road.

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Once the bubble popped in 2008, the value of these houses crashed, and the mortgages fell "underwater" - meaning that market value of the homes was less than the amount outstanding on the mortgage.

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This triggered the foreclosure crisis, where banks that had received billions in public money forced their borrowers out of their homes.

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This was official policy: #Obama's Treasury Secretary #TimothyGeithner boasted that forcing Americans out of their homes would "#FoamTheRunways" for the banks and give them a soft landing;

pluralistic.net/2023/03/06/per…

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With so many homes underwater on their first mortgages, the holders of those second mortgages wrote them off. They had bought high-risk, high reward debt, the kind whose claims come *after* the other creditors have been paid off.

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As prices collapsed, it was clear there wouldn't be anything left over after higher-priority loans were paid.

The lenders (or bag-holders the lenders sold loans to) gave up. They stopped sending notices, stopped trying to collect. That's markets: win some, lose some.

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But then something funny happened: private equity firms, flush with cash from an increasingly wealthy caste of one percenters, went on a buying spree, snapping up every home they could lay hands on.

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They became America's foremost slumlords, presiding over an inventory of badly maintained homes whose tenants are drowned in junk fees before being evicted:

pluralistic.net/2022/02/08/wal…

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This drove a new real estate bubble, as PE companies engaged in bidding wars, confident that they could recoup high one-time payments by charging working people half their incomes in rent on homes they rented by the room.

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The "recovery" of real estate property brought those second mortgages back from the dead, creating the "zombie mortgages" the *WSJ* writes about.

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These zombie mortgages were then sold at pennies on the dollar to vulture capitalists - finance firms who make a bet that they can convince the debtors to cough up on these old debts.

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This "distressed debt investing" is a scam that will be familiar to anyone who spends any time watching "finance influencers" - like #ForexTrading and #RealEstateFlipping, it's a favorite get-rich-quick scheme peddled to desperate people seeking "passive income."

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Like all get-rich-quick schemes, distressed debt investing is too good to be true. These ancient debts are generally past the statute of limitations and have been zeroed out by law.

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Even "good" debts generally lack any kind of paper-trail, having been traded from one aspiring arm-breaker to another so many times that the receipts are long gone.

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Ultimately, distressed debt "investing" is a fraud, with the "investor" mastering a social engineering patter to convince putative debtors to pay debts they don't owe, by shading the truth or lying outright, salted with threats of civil and criminal penalties for nonpayment.

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That goes for zombie mortgages. Writing on #NakedCapitalism, @yvessmith reminds readers not to "pay these extortionists a dime" without consulting a lawyer or a nonprofit debt counsellor, as payment "vitiates" (revives) otherwise dead loans:

nakedcapitalism.com/2023/06/wall-s…

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But the *WSJ*'s 35-paragraph story somehow finds little room to advise readers on how to handle these shakedowns. Instead, it lionizes the arm-breakers who are chasing these debts as "investors...[who] make mortgage lending work."

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The *Journal* even repeats - without commentary - the that these so-called investors' "goal is to positively impact homeowners’ lives by helping them resolve past debt."

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This is where the *WSJ's* ideology bleeds from editorial into news. There's no credible theory that says that mortgage markets are improved by safeguarding the rights of vultures who buy old, forgotten second mortgages off reckless lenders who wrote them off a decade ago.

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Doubtless there's some version of the Hayek Mind-Virus that says that upholding the claims of lenders - even after those claims have been forgotten, revived and sold off - will give "capital allocators" the "confidence" they need to make loans in the future.

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And that will improve the ability of everyday people to afford to buy houses, incentivizing developers to build houses, etc, etc.

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But this is an ideological fairy-tale. As #MichaelHudson describes in his brilliant histories of #jubilee - debt cancellation - through history, societies that unfailingly prioritize the claims of lenders over borrowers eventually collapse:

pluralistic.net/2022/07/08/jub…

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Foundationally, debts are amassed by producers who need to borrow capital to make the things that we all need. A farmer needs to borrow for seed and equipment and labor in order to sow and reap the harvest.

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If the harvest comes in, the farmer pays their debts. But not every harvest comes in - blight, storms, war or sickness - will eventually cause a failure and a default.

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In those bad years, farmers don't pay their debts, and then they add to them, borrowing for the next year. Even if that year's harvest is good, some debt remains.

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Gradually, over time, farmers catch enough bad beats that they end up hopelessly mired in debt - debt that is passed on to their kids, just as the right to collect the debts are passed on to the lenders' kids.

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This splits society into hereditary creditors who dictate terms to hereditary debtors. Do this long enough and every farmer finds themselves obliged to grow ornamental flowers and dainties for creditors' dinner tables, while everyone else goes hungry - and society collapses.

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The answer is jubilee: periodically zeroing out creditors' claims by wiping all debts away. Jubilees were declared when a new king took the throne, or at set intervals, or whenever things got too lopsided.

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The point of capital allocation is efficiency and thus shared prosperity, not enriching capital allocators. That enrichment is merely an incentive, not the goal.

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For generations, American policy has been to make housing asset appreciation the primary means by which families amass and pass on wealth; this is in contrast to, say, labor rights, which produce wealth by rewarding work with more pay and benefits.

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The American vision is that workers don't need rights as workers, they need rights as *owners* - of homes, which will always increase in value.

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There's an obvious flaw in this logic: houses are *necessities*, as well as assets. You need a place to live in order to raise a family, do a job, found a business, get an education, recover from sickness or live out your retirement.

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Making houses monotonically more expensive benefits the people who get in early, but everyone else ends up crushed when their human necessity is treated as an asset:

gen.medium.com/the-rents-too-…

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Worse: without a strong labor sector to provide countervailing force for capital, US politics has become increasingly friendly to rent-seekers of all kinds, who have increased the cost of health-care, education, and long-term care to eye-watering heights

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That forces workers to remortgage, or sell off, the homes that were meant to be the source of their family's long-term prosperity:

doctorow.medium.com/the-end-of-the…

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Today, reality's leftist bias is getting harder and harder to ignore. The idea that people who buy debt at pennies on the dollar should be cheered on as they drain the bank-accounts - or seize the homes - of people who do productive work is pure ideology.

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It's the kind of thing you'd expect to see on the *WSJ*'s editorial page, but which sticks out like a sore thumb in the news pages.

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Thankfully, the @CFPB is on the case. Director @chopracfp has warned the arm-breakers chasing payments on zombie mortgages that it's illegal for them to "threaten judicial actions, such as foreclosures, for debts that are past a state’s statute of limitations."

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But there's still plenty of room for more action. As Smith notes, the 2012 #NationalMortgageSettlement - a "get out of jail for almost free" card for the big banks - enticed lots of banks to discharge those second mortgages.

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Per Smith: "if any servicer sold a second mortgage to a vulture lender that it had charged off and used for credit in the National Mortgage Settlement, it defrauded the Feds and applicable state."

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Maybe some hungry state attorney general could go after the banks pulling these fast ones and hit them for millions in fines - and then use the money to build public housing.

eof/