More on foreclosures - from the Baltimore Sun

The Baltimore Sun had a top front page story this morning
AT-RISK LOANS RISING IN STATE (in caps in the original)
by Jamie Smith Hopkins - 6/14/07

Here's some highlights

Geographic and socioeconomic distribution:

Rates in the suburbs are rising faster than in Baltimore, with defaults of pricey suburban homes, condo-conversion projects and even an undeveloped section of a new-home community in Harford County - which went back to the lenders at an auction this week.... loan problems are particularly focused in a handful of states, ones with persistent job losses - Ohio, Indiana and Michigan - and ones that had a lot of real estate speculation, including California and Florida.

The number of homes in the foreclosure process in Ohio, Indiana and Michigan is so high that together the three states account for about 20 percent of all U.S. foreclosures. Ohio tops the country, its share of homes in the foreclosure process more than six times Maryland's. [ note - this is big-3 auto industry downsizing effect]

Trend:

I think there is a clear indication that the number of foreclosures is only going to increase," said Phillip R. Robinson, executive director of Civil Justice Inc., a Baltimore legal-help group. "The concern that I have as a public-interest advocate is, what do we do to help people in that pipeline save their home ... and how do we prevent people from getting into inappropriate loans?" [ emphasis added]

Root cause and solutions:

Now, I find it interesting that the "solutions" to this problem all seem to involve some kind of governmental legal or policy action.

One "solution" in Maryland and elsewhere is to use taxpayer money to bail out those in trouble and, well, reward those who got this whole thing rolling in the first place which, one might think, would only reinforce that behavior in the future. ("unintended consequence"?)

The state said this week it has commitments for $100 million to refinance Maryland homeowners from such ARMs into fixed-rate mortgages so borrowers aren't overwhelmed. "We're going to stand up ... to protect that building block of wealth for the middle class that is homeownership," Gov. Martin O'Malley said as he announced the initiative.

Another "solution" involves "going after" those people who oversold these loans in the first place, people who say in self defense "why blame us?" Congressmen are threatening to change which agency "regulates" such loans if much stronger rules are not put in place to "bring this under control." [ Hmm... sounds like a regulatory feedback process to me...]

What is, to me, conspicuously absent from those solutions is raising the effective economic IQ of the people who fell for this very bad idea in the first place.

Trying to "regulate" this once it's at full throttle is like trying to control the flow of smoke with huge billboards, instead of putting out the fire.



We keep trying to come up with "foolproof" ways to, well, make life safe for fools. It's very expensive, and it doesn't work very well, if at all. It also results in being a real pain for those who were responsible in the first place, who end up bearing the costs for those who were irresponsible.

But the irresponsible claim immunity on account of stupidity. "The car was going so fast that there was nothing I could do to stop on the ice! It's not my fault!"

Right. And media feed this concept. I bounce off the walls every time I see headlines like "ice causes pileup on freeway" or "fog causes 27 car crash - 5 dead."

In aviation, there is no such thing as a crash caused by "bad weather." There is "a decision to continue operations into weather beyond the skill and experience of the pilot." This gets back to people. To us.

In my mind, that's what needs to be fixed. We need to overcome collective stupidity and greed, by changing the story, and working together, and trying to have a group IQ that is at least as large as the largest individual IQ among us, if not larger.

That used to be one of the points of civilization, literature, history, science, and government.
We've abandoned that in favor of downstream damage-control efforts, the same way our health care system focuses money on heroic repair instead of prevention.

Curious. Why do we do that?

------- post script

I wanted to clarify one point. I'm not saying that people as individuals are stupid, but that the way we're interacting and interconnected (or not) is what's stupid and what's broken.

This is why understanding that basic concept about "systems" is so critical, or we can't even begin to see "where" this is broken. The problem isn't with what's between our ears, because humans are pretty smart animals. The problem is at a different "level".

There are "levels" and each one has properties that are mostly independent in the short run from other levels. I'm talking about a "systems" problem in that the way otherwise-smart people INTERACT and INTERCONNECT is what's broken here.

And therefore, that's what needs to be "fixed."

This is not a problem that just affects "dumb" people, or that has anything to do with native intelligence. This happens to doctors, scientists, airline pilots, CEO's. There's even a book called "Why do smart people do dumb things?"or some similar title. Individuals can make just a little indent to try to keep order around themselves, and this can be totally undone by a larger tilt to the playing field on a neighborhood or cultural level.

In the short run, "gangs" or groups of teenagers go off and do things that are incredibly stupid that are almost incomprehensible and that no single one of them would have done if left to himself. There's a "group effect." It can be for the good, or for the bad - it's neutral.




(Picture from my post on The Toyota Way viewed as feedback control).

For high-reliabilty, critical operations, like an Intensive Care Unit, or an aircraft cockpit,
or a nuclear reactor control room, literature shows that you can't get the results you need unless both levels are engaged and working well - the individual level and the group / team level. Individuals aren't strong enough to manage alone, regardless how bright they are.

Bryan Sextan presented data that 74% of commercial airline accidents happened on the very first day a new team of people was formed out of people that used to be on other teams. The pilots are still 20,000 hour professionals, but the "TEAM" has not yet gelled, and that leave a gap between levels that the accident can leak through.

(See my clever cartoons on accidents leaking through "swiss cheese" that's not well interconnected here in "The road to Error" ).

Loose people are like "dust in the wind" and can be blown anywhere. Interconnected people are like mountains and can defy the wind.

In that metaphor, I'm less interested in "reimbursing the dust" than I am in understanding why the mountain has turned to dust, and whether that is reversible, and if so, how and when can we start?