Tuesday, June 03, 2014

Taub and the Long, Bleak Story of Housing

Jennifer Taub's Other People's Houses is likely to be about as good a book as we are going to get by way of overview of the woes of the housing market over the last generation. Which is a pity because it might have been better.   It has some great virtues, of which more in a moment.   I suspect its primary problem is that the author set herself too ambitious a goal and wasn't able to get control of her material.

In particular, she decided it was necessary, in order to tell the story of the recent uproar, also to go back and (re)tell the story of the Savings and Loan debacle of the 80s.   I can understand her thinking here:  much of our late calamity does indeed have its roots in the S and L mess, and you can understand today better if you understand yesterday.  But there are similarities as well as differences and would be useful to try to isolate and identify those differences for whatever lessons they may offer. On the same theme, while we may not yet be ready for the last word on the Savings and Loan era, still, we ought to be in a position to impose some kind of framework (however simplistic) and to formulate some useful questions.  

  Taub doesn't do that, and so she is reduced to telling some individual stories.  Some of the stories are good, but there's no identifiable pattern to what she has put in and what she has left out.   Moreover in the nature of things, she winds up relying heavily on secondary sources: if you read Martin Mayer or William K. Black on the S and Ls (or, to one forward, Kirsten Grind on WaMu) you're going to find a lot here that you have read before (exhaustively footnoted, I should say--Taub is nothing if not conscientious about sourcing).

One irony is that, protean as her reach may be, it is remarkable how much she feels she has to leave out. Sometimes the choices appear just arbitrary. For example, she includes an account of the notorious "Keating Five"--the senators who earned themselves a moment's notoriety for their role(s) in seeking to protect the infamous Charles Keating, one of the poster boys of S and L bad behavior.  Yet she does almost nothing with the underlying Keating story.  Very well: she had to leave a lot out--but if Keating isn't important, how can the Keating Five be?

Perhaps a deeper structural flaw is that she tells the reader almost nothing about Michael Milken and the junk bond revolution.   Needless to say, I feel her pain: the Milken story is stuff enough for a book in itself (actually, there are several good ones).  I certainly can't blame her for not wanting to tackle it here--but if she doesn't tackle it, she can't really claim to be telling the whole story.

She also spends what I would regard as an undue amount of time on one Supreme Court case--Nobelman, well known to bankruptcy cognoscenti.  For those outside the inner circle, this is the case where the Supremes held that the Bankruptcy Code debars a Chapter 13 ("regular income") debtor from rewriting his home mortgage.  Taub disapproves.  She's strongly of the view that rewrites in troubled times. But here matters get complicated.      She also believes that rewrites should be done via the bankruptcy court.    After some waffling, I've pretty much come round to the view that rewrites are a good thing (see this).   But must it be done by the bankruptcy court?  Again, I think she might be right that it should be.  But I don't think it is a deal point: I would rather have seen her concentrate on rewrites per se, leaving the question of who and how as a side issue.   Linking the two as if they were necessary corollaries unduly complicates her argument. 

[And FWIW I think she was too hard on the Supremes.  The issue was a fairly straightforward matter of statutory interpretation.  I think they read it correctly (and the decision was nine-zip, so I am not alone).  But right or wrong, statutory interpretation is all they saw themselves as going.  So if Taub has a beef, it's really with the Congress that wrote the statute to begin with.]

But enough about stories  In contrast to the early chapters, I think far the best part of the book is, ironically, also perhaps the least salable.  That would be Chapter 14, her careful account of the institutional structure, both in the banks and in government, its slow, inexorable path to disaster.  She identifies five "links" (supine Fed; securitization;  collateralized debt obligations (CDOs) and CDOs-squared; credit default swaps (confusingly, CDSs); and leverage.  The tag lines will be familiar to anyone paying attention, but it is the richness of her detail that gives her account density and heft.  To this we can add her final chapter, in which she traces the failure of housing reform in the Obama administration--and lays the blame like a dead rat on the doorstep of the President himself (she tops it off with a useful aide-memoir of the arguments against mortgage rewrites, together with rebuttals).

There is, in short, a lot of good stuff here.  I'm glad I read it, and I'll go back to it. But at the end of the day, I think she does nothing so much as just prove how damn complicated the whole story is.

Chintzy afterthought:  the title is touching, but does it make any sense?  Her whole point (with which I would agree) seems to be that it is these people we are talking about, the owners, and that these are their houses, not those of anybody else.

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