Rising rates and the soon to be homeless

(This and other photos of homeless in Chicgago by crowbert )

The housing boom in the US appears to be over in a big way. Now they estimate that 1 to 2 million families will lose their homes this year to foreclosure, unable to pay the mortgage. It's a good time not to be prejudiced against the homeless.

Anywhere, here's a summary of the bad news, and then some reflection on what's going on here from a public health perspective.

The local reason is that their monthly payments will jump, and in some cases by a lot, meaning they will go from affordable to "not enough to buy food and pay the mortgage."

This is how today's New York Times put it today in
Rising Rates Squeeze Consumers and Companies
by Gretchen Morgenson and Vikas Bajaj

Now that party may be coming to an end....
The fallout is likely to be widespread, and felt most immediately by homeowners and people looking to buy a house.

Particularly hard hit will be consumers with weak credit — known as subprime borrowers — who are faced with mortgage rates that will soon reset to higher, in some cases double-digit, levels.

How many is that in real numbers?

Higher rates are already contributing to an increase in foreclosures. ...Foreclosures in May were up 90 percent from the period a year earlier... the total foreclosures of 176,137 in May were sobering. [ my note - that's a rate of over 2 million a year already]

For struggling homeowners, the rise in rates could not come at a worse time.

And even that number is low compared to what's coming, because many of those sub-prime loans had a 3 year grace period of low rates and the 3 years is just about up.

Last year, adjustable rate loans accounted for 25 percent of mortgage applications, up from 11 percent in 1998, Freddie Mac said. Demand for adjustable rate loans peaked in 2004 at 33 percent; many of those are at or near the reset point....Some $100 billion in subprime loans are scheduled to reset between now and October.

And we have this thought:

“I don’t think they are panicked,” he said. “But now they are wishing, ‘Why didn’t I take a fixed rate three years ago when I had the chance and rates were low.’ ”

Well, first we need to look at whether this problem is going to get worse before it gets better. Sadly, the answer is almost certainly yes.

The unusually low interest rates of the last three years have been an enormous boon to almost every corner of the American economy....The recent rate move came as something of a surprise to Wall Street. It is the result, traders say, of heavy selling by foreign investors...

The first thing I notice is that the article talks about "unusually low rates of the last few years" and then shows a graph of the last few years. Well, that's not very helpful. What are we talking about here? What's the "usual" rate? What's behind curtain number one, Johnny?

The media have done this consistently, and fed this short-term mentality. It took me quite some time to dig out what the long-term trend actually looks like, because almost every news story just had the last few months or years.

I did that for my piece "The Mortgage Trap Begins Closing" that I posted here December 11, 2006. and "Honey, we're losing the house" where I said

As, one analyst put it, people seem to have turned their houses upside down like piggy banks, shaken all the money out, and spent it already, and now there's nothing left to use to pay the new bills. To top that off, the monthly mortgage payment magical 3 year grace period has expired, and the minimum payment they're demanding just doubled. How can that be?

Then of course, as now, Wall Street analysts were baffled and surprised by this. I'm not sure why that is. Long term trends? Here's what the savings rate looks like, long-term, for individuals:

The last time the personal savings rate was negative was in 1933. (Source EBRI Databook, US Department of Commerce.)
US Trade Deficit (From BEA, quoted at invisibleheart. "Does the Trade Deficit Destroy American Jobs, Russell Roberts, George Mason University, Nov 2006.)

These aren't perfectly on the mark, and I get complaints from economist that I'm not using these correctly, but I think the overall point is the same regardless - whether we look at individuals or corporations or the USA as a whole, we've been living way beyond our means and "charging it" but the bills for the party are coming due now.

But let's do some "root cause" analysis and look beyond the surface here. So we have that many actors on every level have been spending like there's no tomorrow, writing checks against an empty bank account. And we have that foreigners, who have a lot of dollar-denominated IOU's, are starting to bail out and get rid of them, even at a loss, because they're getting worried that the dollar will be devalued another 30% or so, and they don't want the value of their IOU's to fall 30%, thank you, when there are other options and other places in the world to invest in.


And that entire process seems to be fueled and encouraged by the media, the banks, the credit card companies, television, all encouraging people to ramp up their debt and buy more stuff.

Aside: Back to the "yellow boxes" on the complicated flowchart I put up yesterday (see below) The "yellow boxes" are where "stories" or "narrative" have direct impact in the feedback control cycle that manages our lives, but that's sufficient to completely alter perceptions (lower right) and external reality and how others relate to us and act toward us (upper right).

-- this whole cycle is driven by a myth and mental story, a mental model, that makes such behavior "OK" or even "GOOD". First, there is the story that "things are cyclical and this is just a downturn and it will turn up again soon because it always does." (That story doesn't play too well in Flint, Michigan, where the GM plants closed and don't seem to be coming back.)

Then there is the story that a huge amount of debt is fine. Everyone's doing it. That always sounded a little too good to be true, but it was pleasant to the ears.

Then there was a popular misconception by probably millions of buyers that couldn't do basic math and slept through all that life-skills-math nonsense in high-school. If Johnny's adjustable rate mortgage is at 5% and he pays $500 a month, and the rate goes up a little, just 5 %, what will his new payment be? $505? or $1000. Most people were willing to buy the story that $505 was the right answer. Wrong.

Then there was that nagging suspicion that something else was too good to be true. How could these ads be right? Buy a $400,000 home for $500 a month? Better RUSH! SALE ends Tuesday!

OK, so, what's my point? A lot of people got "caught up" in this land-office business and thought they could get something for nothing, and that the rules normal mortals lived by didn't apply to them, and that tomorrow was a long long way away, so far away it didn't matter. Except that it IS tomorrow now, and we all live in our own wake of our own past decisions, and Sunday morning those Saturday night decisions aren't looking very good any more, and what a headache, and how did the couch end up in the front yard anyway?

With my annoying "Five Why's" (after Toyota's practice), again, I'll ask, "Why?" Why were people so gullible yet again? Why don't we get smarter as time passes? Why isn't the country a "learning organization?"

Well, some of the country is learning. The part that figured out it could rush in, sell a trillion dollars worth of junk mortgages, and rush out again before the door closed is learning. They just got a lot of positive reinforcement.

But the poor people, heavily minorities, didn't learn.

Why?

Why didn't they learn from history? Why didn't they learn from their own past? Why didn't they pay attention in school? Why didn't they ask around in church and see if everyone else thought this was a good deal or not?

Why are the poor, who most desperately are in need of making as few mistakes as possible, not organized to learn from experience so they don't have to repeat it?

Or is it the other way? Those who don't learn from experience end up being poor and exploited?
Well, some of both, most likely. It's a spiral that feeds itself.

There is a known remedy for gullibility, and that's "consultation". Have some sort of social system in which wiser people are identified and consulted with before rushing into some sort of precipitous action that you'll end up regretting that will, literally, cost you the farm.

This is not a difficult concept, and it costs zero dollars to bring to pass, but it is one that seems hard to carry through on.

Why is that? (I'll keep asking, and keep on going upstream towards the "distal" cultural issues that are generating all this downstream trauma.)

Well, the USA seems to have a culture that is revolted by the idea of working together, or learning from one's elders, or consulting before action, or otherwise limiting personal "freedom" by being burdened with lessons from the past. We bail on our parents, we discard our history books, and we want to be "free", even if it means "free to crash and burn and be exploited." "the past has nothing to teach us!! Everything today is NEW!!!" Oh, really?

Or do we really want that, or did that idea get into our yellow boxes and internal story some other way? Where exactly did this idea come from, and when did we vote on it and agree to it, anyway?

Rejecting every constraint doesn't make us free to run with the wind or sail the skies -- it makes us into jellyfish or slugs that have no bones, and are easy to eat for lunch because they have no shells either. Rejecting discipline and wisdom makes us exploiter-bait. Rejecting all that annoying math and school textbook learning makes us exploitable and gullible.

But, most of all, rejecting each other's consultation makes us end up broke, homeless, and dead.

So, why do we do that then? Don't get a guilty look and say "something inside me didn't work." This isn't a local, personal thing. It's a global, social, cultural thing that's broken here.

If the simple idea of pooling what brains and knowledge we have, and consulting with each other before taking action is such a hard thing, we need to stop, flag this point, and call a meeting to understand exactly WHY that is. Something is broken here that should be working. It can be fixed, but first we need to understand what it is and where it is.

And the something is at a higher level than people, and that's what makes this hard to see and hard to fix, unless you have tools to do "systems thinking." And, of course, you need to believe that there are levels higher than people that matter. I'm convinced of that.

Whatever cultural forces have conspired to cause us to reject education, understanding, discipline, and consultation need to be fought off and rejected, because that is not the way to freedom at all -- it's the way to the homeless shelter. No, they'll be full and overflowing. It's the way to dissolution and death. Social disconnection leads to death. Rejecting the past means rejecting the future, and also leads to death. Life is too complex to try to learn it all on your own dime, at your own expense.

So, we need to ask, if my current story, if our current internal story makes "consultation" seem wrong or impossible, what's a better story and where can I get one? Where can we get one? Can we all get in with one ticket if we come in the same car?

This conversation makes me think a little of a Peanut's cartoon strip, where Lucy walks by Linus, who is playing the piano (Is that Linus?) Anyway, he says "My fingers hurt." and she says "maybe your fingernails are on too tight" and walks away. He sits and looks at his hands in surprise and finally says "I didn't even know they were adjustable!"

Well, yes Linus, we all have internal stories. Some are helpful and some are harmful, but all of them can be changed. Some stories make it hard to do the right thing, and some stories make it easy to do the right thing - they affect that axis. Some stories motivate us and some stories suck the energy and life right out of us -- they affect that axis too. Some stories reach back all the way to our perceptions, and twist our perceptions around so we don't see things truly, but we see a distorted reality, a selective reality, that supports the story. It's as if the story was alive, and wanted to live, and didn't want to fade away, so it twists what we look at and what we see so that it adds up to something that supports that myth and story.

Suddenly, those who've been reading this for a few days may go, "Oh. Another S-loop."

Yes, another S-loop. Stories get into our head and live off our psychic energy and survive by twisting around our perceptions to support themselves, and sometimes even by twisting our actions around to support themselves, or by twisting our actions so as to cause other people to do things that support our self-concept and justify it.

The yellow boxes in my diagram can reach out and change the green boxes. Internal stories can change the lower right corner, and distort perceptions so that we only see things that support our myth.

We can never be free of stories -- they are part of how we operate. But we can change the story, we can reprogram the computer. If we can't have a palace, we can at least have an internal story that supports rational action and prevents us from harming ourselves or doing totally stupid things over and over again.

Such stories are far stronger, of course, if they are shared stories, supported not only by ourselves, but by our friends and family and neighbors.

Hmm. This is sounding a lot like the role religion plays. Or science. Those are each ways to put a story in place that can help stabilize us and make us figure out how to work together and consult and learn together what we can't learn separately.

That was one saying of of the American revolution, that if we didn't "hang together" we'd all "hang separately."

Some stories are way better than other stories. Pick a good one, since you'll have to live with it.

Or die from it.

The summer is gone,
The ground's turning cold,
The stores one by one they're a-foldin'.
My children will go
As soon as they grow.
Well, there ain't nothing here now to hold them.

North Country Blues (1963)
Bob Dylan

My Comair 5191 crash analysis now available

Because "systems thinking" is a difficult concept to describe, I wrote and just posted a paper analyzing a commercial aircraft disaster - the crash of Comair 5191 - in Lexington Kentucky, August, 2006. This is a full-length (30 page) analysis with pictures and diagrams and source materials, aside from the cockpit voice recorder transcripts, which are linked below. The final NTSB findings on the case are not yet out, to my knowledge.

It's a little rough around the edges, but it starts with the basic astounded question of how two, fully trained pilots, not under pressure, could taxi to and attempt to take off from the wrong runway, resulting in the death of all on-board except the one who was flying the plane, who was pulled from the flaming wreckage by a first responder. The runway was a few hundred yards too short for the plane to have made it off the ground safely.

So, it goes from "How on earth could this have happened!?" to "Oh... There but for the grace of God go I." Only the new commercial pilots on the pilot chat blogs couldn't imagine how such a thing could ever happen to them. It brought to mind the old saying "There are bold pilots, and there are old pilots." In this case, however, the rest of the world conspired to set the stage.

As with "errors" in hospitals, it typically takes a whole team of people to align their actions in the wrong way (the "swiss cheese model"), for someone to buy the gun, someone to load the gun, someone to cock the hammer, someone to hand it to the poor last guy in the chain, and that guy to pull the trigger. For legal purposes, blame is assessed one way, a way this paper does not assess. For purposes of safety engineering, and seeing where interventions might help to avoid ever having this happen again, we need to look at a whole different set of factors that set the stage for this "accident".

Please contact me if you'd like to use this paper (or a newer, better version) for instructional material. Thanks!

( Note: I am a private pilot, but I'm not a member of the NTSB or any official agency, and this analysis is a personal analysis for instructional purposes in safety engineering, not intended for legal purposes. I have no relationship that I know of to anyone involved in this case. These are all real, living people and my reconstruction may be entirely wrong. The point is to honor those who died by learning everything we can from their deaths so this won't happen again.)

Prior Posts:
Comair 5191 - Confirmation Bias and Framing (1/20/07)
Cockpit voice recorder transcripts
Washington DC Crash of Air Florida was 25 years ago - remembered
(with links to BMJ, High-reliability engineering, TEM, etc.)

Subtle nuances matter

It's not obvious what matters.

Whether we are just thinking, or doing fancy math, there's the stuff we leave in our model, and the stuff that we throw out, because it doesn't matter. Sometimes we think things don't matter because they have such a small effect that they are "negligible."

Sometimes we are wrong.

A classic example was the mistake that pouring toxins, like mercury, into the sea would dilute them to the point where they didn't matter. We forgot that nature has natural filters and amplifiers that recollected all those dilute molecules in one place, namely, the tissue of fish, so that the concentration was again dangerous or lethal to humans.

Or sometimes we forget some other factor. Nuclear scientists at Dugway Proving ground computed how much fallout would land on the ground and how much would wash away and "go away", and figured it was safe. After the sheep died and many people got cancer they found out, oopsie, that grass is remarkably good at harvesting water and holding onto it, so instead of the toxins washing away, they were recollected.

So, sometimes things that look like "small" effects do "go away", and sometimes they don't.

One conceptual problem we have is that we're not used to math where the answer depends on what time scale or geogrphic scale we're working in. So, yes, in the short run, "rock" is stronger than "water". In the long run, "rock" is demolished and destroyed by "water".

Or, in the short range, electromagnetic forces dominate gravity. A balloon, rubbed on the sleeve, will stick on the wall, not fall. For many purposes, gravity "goes away." But, if you look on longer time scales, it's the "strong" force of electromagnetism that "goes away", and the end state of the world is determined by that "weak" force of gravity, on a cosmological scale.

Or, if you look at an M.C. Escher painting of a staircase or waterfall, locally, there is nothing wrong, aside from a very slight noise or error -- but that error accumulates and on the larger scale, the total painting is absurd, even though locally any small part of it makes sense.

So we need to be careful about not "throwing out the baby with the bathwater."
It's not always obvious which is which.

Then there are other effects even more insidious or subtle. As the philosopher "Snoopy" observed one day, lying on top of his doghouse in the cartoon strip "Peanuts",

"Did you ever notice, that if you think about something at 2 am, and then again at noon the next day, you get two different answers?"

Or, another example I love, the story of two stone masons working on a church in the 1600's. One was doing very good work, and the other was doing work that needed to be redone often. The supervisor came to talk to each and asked them what they were doing. The one with poor outcomes replied "I'm building a wall." The one with great outcomes replied "I'm building a cathedral."

So, at least to human beings, it seems to matter a great deal whether the work they are doing makes sense in a larger context, whether it has "meaning" to them or not.

Is this true for people who write computer programs or "provide" health care services as well? Probably. How would we know for sure? And if it does matter, are we designing our systems in light of that effect, whatever it's called?

And is this just some "mental" or "psychological" effect, or is it an effect so "real" or fundamental that it would show up even if the agents building things were robots not people? Does this sort of thing matter to ants or bees or termites or bird swarms or swarms of viruses or bacteria?
Does it matter to the US Army?

Do real, tangible outcomes depend on "meaning"?

Certainly, from the model I described yesterday of nested contexts, the outer, distant contexts matter a great deal, although, again, the effects may take longer and longer as the context gets more distant. So, as many computer system designers and nation builders have discovered, "culture matters", and the survival of some change imposed from outside on a system depends, in the long run, on whether it fits with culture or not. If it fits, or can transform the culture to fit, it will remain. If it doesn't fit, the cultural equivalent of the body's immune system will identify it as "foreign tissue" and reject it. You can take that one to the bank.

Today's International Herald Tribune has an opinion piece on this subject at the scale of nation building, reflecting on Iraq and Afghanistan. Here's a brief snippet.

Do Not Neglect Culture
International Herald Tribune (on-line)
May 8, 2007
by Nassrine Azimi (Hiroshima, Japan)

The Rand Corporation recently published a study called "The Beginner's Guide to Nation-Building." It covers the basics with clarity and objectivity, defining the roles of the military, the police and the judiciary; distinguishing humanitarian relief from economic stabilization and development, explaining the complexities of governance and democratization.

But the book has almost nothing about what is clearly the Achilles' heel of recent nation-building adventures: culture. No single chapter is devoted to it - nothing on the role of culture in countries being rebuilt and, just as importantly, nothing on the culture of the nation-builders themselves.

Though we are reminded that six of the seven cases of nation-building initiated in the last decade by the United States were in Islamic countries, we do not learn much of the lessons of this extraordinary experience.

How, for example, did it inform the dispatch of some 120,000 mostly Christian soldiers to Iraq - a Muslim country and one of the most ancient civilizations on earth?

Neither do we learn much about what kind of cultural preparations, if any, were undertaken in advance of embarking in Afghanistan, also an ancient and proud land, with subtle values and vulnerabilities not readily accessible to the Western mind.

The fault, however, may not lie as much with the Rand book as with nation-building operations themselves. In most, culture has been at best an afterthought and at worst a shallow and cynical exercise in public relations.

This was not always so. The U.S. occupation of Japan between 1945 and 1952, so often cited as a model for Iraq, was quite different. American planners then appeared to have asked themselves some hard questions about dealing with a country they barely knew or understood, with which they had fought for almost four years, and which lay in ruins....

Perhaps this same effect is as evident in the many failed efforts across the country to install "Electronic Medical Record systems" where the system did not fit the culture or "the way we do things here", and the hope that the culture would "come to the system" was dashed by the fact that the system yielded to the culture.

This phenomenon is very well known and studied in public health, after a century or so of attempting to impose behavioral patterns on indiginous people who tended, as soon as the intervention team was gone, to keep the goodies and discard the behaviors that the strangers had imposed. The natives happily nodded "Yes!" while thinking to themselves "In your dreams!"

The lessons are that lasting change has to be rooted, and, in a mixed metaphor, rooted "deeper and deeper" upwards into the hierarchy of contexts that surround the point of intervention, or the unit of the hierarchy of life that is being tinkered with.

This effect is dimly and incorrectly perceived by many in McGregor's "Theory X" camp as "resistance to management", and as something that needs to be attacked, proponents of such resistance located and rooted out and fired, and overcome by brute force. In the short run, rock beats water. But, in the long run, water beats rock. If the intervention is "not me", the culture will ultimately find some way to reject it, or perhaps the culture will simply collapse under the conflict.

I think the prophet Yogi Berra once said "You can hear a lot by listening" , or words to that effect. It seems advisable that those messing with systems behavior at any scale should first investigate the system's "culture" before investing a lot in a particular change that seems, from the outside, to make sense. There are subtleties that are not obvious, "small things" that don't fit that turn out not to be so small after all, as the mercury or the fallout or the stone mason examples showed.

Whether a piece of the developmental puzzle "fits" or "is good" or "goes there" needs to be assessed at the cultural level, after all the "small things" have been given a chance to accumulate and add up again. This is a "complex adapative system" and the behavior at large scale is not reflected, in any obvious way, by the behavior at small scale.

The very fact that that's the problem is not widely understood.

There is no way that, for example, the CCHIT assessment of electronic medical record systems, at the individual user level, can possibly reveal whether this overall system will "fit" or "work" if "installed" at a particular site, in a particular "culture".

Collaboration-ware needs a completely different scale approach than classic IT software.
Again, that's not recognized as a problem to even fret about.

We are desperately short of good tools and accepted practices in this area. Maybe public health informatics can address that in the coming decade.

W.

Credits: Photo above is "The Hierarchy of Consciousness" by slark on flickr.