Ground causes accidents, claim pilots!

Newsflash - Pilots blame ground for accidents! A new federal study has revealed what was long suspected - the ground is responsible for most airline crashes. A working commission will release Guidelines in January for proposals to prohibit having ground in or near airports. "If it wasn't for the ground, we'd still be in the air!" commented First Officer Spock.

That last paragraph of invented news seems absurd, doesn't it?

But, every year, as my wife will confirm, around the time of the first snow, I will be bouncing off the walls at some newspaper headline stating "Ice causes accident" or "Ice causes 23 car pile-up on freeway, 8 dead."

To me, the claim "Ice caused the accident - I hit the brakes but couldn't stop in time!" is in the same category as pilots blaming the ground for accidents. Yes, there was ice present. No, the ice did not reach out, grab the 23 cars, and smash them into each other.

Actually, one of the first things they teach you in pilot training is that "Bad weather does not cause accidents. What causes accidents is the decision by the pilot to continue operations into conditions beyond their skill and ability to handle. "

The place to stop such accidents, then, is not at the point where the plane meets the ground, or the car smashes into a telephone pole -- but way back at the point where an incorrect decision was made to get on the road or in the air in the first place - given weather conditions.

The denial of blame and responsibility in the excuse "There was nothing I could do!" needs to be countered with - "Yes, there was, but it was earlier and further upstream. The outcome was sadly predictable."

I say all this leading up to another day's look at the Mortgage and Foreclosure crisis unfolding around us, particularly hard hitting in Michigan and Ohio.

I will grant that there were "predatory practices" at work in aggressively pushing very bad mortgages on people with zero chance of paying them and no idea what they were signing up for. That's bad in its own right, and should be outlawed.

Still, I and many others are struck by the attitude and mental model shown by some of the "victims." Talking to one homeowner who ran into trouble in the Cleveland Ohio area (Cuyahoga County), the New York Times today reported several comments, which I'll repeat here:

Can the Mortgage Crisis Swallow a Town?
by Nelson D. Schwartz
New York Times
September 2, 2007
Maple Heights, Ohio

TAMMI and Charles Eggleston never took out a risky mortgage, never borrowed more than they could afford and never missed a monthly payment on their neat, three-bedroom colonial in the Cleveland suburbs. But that hasn’t prevented them from getting caught in the undertow of the subprime mortgage mess now submerging this town.

Over the last 18 months, the Egglestons have watched one house after another on their street, Gardenview Drive, end up foreclosed and vacant...

It is a scene being repeated in cities and towns across America as loans that were made to borrowers with little or no credit history, many of whom could not even afford a down payment, fail in ever-growing numbers....

Indeed, what was once a problem confined mostly to economically struggling areas is quickly becoming a national phenomenon. ...At current rates so far this year, RealtyTrac expects foreclosure filings to hit two million in 2007, or roughly one per 62 American households — a rate approaching heights not seen since the Great Depression.

Analysts also say that the fallout from mortgages gone bad is spreading well beyond borrowers now in default. It has begun to engulf middle-class communities like Maple Heights, where nearly 10 percent of the houses — or 910 properties — have been seized by banks in the last two years...

“I don’t think we’ve hit bottom,” says Michael G. Ciaravino, the mayor of Maple Heights. “My fear is that foreclosure rates could go to double where they are today.”

IN terms of the subprime mortgage meltdown, Ohio has been among the hardest-hit states, according to the Mortgage Bankers Association....

For a mayor presiding over a town in crisis, Mr. Ciaravino doesn’t seem angry, but beneath an affable exterior is barely concealed frustration that the danger of subprime debt became a national issue only after Wall Street began to wake up to the threat this summer. “We’ve been warning of problems for years,” he says. “I’m just a small-town mayor. Where was the foresight?”

“There’s plenty of blame to go around,” warns Mr. Ciaravino...

It is also clear that the Sweets bear some responsibility for their predicament. “I do blame myself a little bit,” Mrs. Sweet acknowledges. “I feel dumb.” She explains that she was focused on the monthly payment when she borrowed from Countrywide, not the interest rate or taxes due. “Once we got the loan documents at the closing, I just came home and stuck them in a drawer.”

So, when her monthly payment requirement doubled, "There was nothing she could do." Hmmm.

Maybe, one thing she might have done was not put her foot into the bear-trap in the first place. There's little doubt that it was a trap, and it was mis-represented, and she was taken advantage of , and the bait looked very inviting, and the trap part wasn't obvious.

But, then again, that is how traps for the unwary are always designed, isn't it? Find some kind of attractive bait, cover up the steel jaws with dead leaves or something, and put it right in the path where people will come upon it frequently until they "give in" and decide to reach for the cheese in the mousetrap.

This was some kind of surprise, that there are financial traps for the unwary out there? Or that "Fools and their money are soon parted" ? From here, that looks about as unexpected as discovering that ice on a road is slippery.

Again, I'm not saying she wasn't taken advantage of. The same article has a few words from a banker, Marc A. Stefanski, the chief executive of Cleveland's Third Federal Savings and Loan, worth quoting:

“The model has shifted,” says Mr. Stefanski. “It became very lucrative. But it was totally irresponsible for the sake of greed.” Not that Mr. Stefanski didn’t notice the profits to be had. “Absolutely, we were tempted,” he acknowledges. “We arm-wrestled and talked, but we decided not to change the model. We felt it wasn’t the right thing to do.”

Mr. Stefanski is no social worker. He lives in an affluent suburb of Cleveland and earned nearly $2 million last year. But he does not hide his feelings about just what went wrong in places like Maple Heights. “The whole system was based on raping the public,” he says, matter-of-factly. “Not everyone should own a home — just those who can afford it.”

Third Federal has a branch in Maple Heights, Mr. Stefanski says, and in the past, “we owned Maple Heights.” But in recent years, he says, “The predators just jumped on it.”

But what I am saying is that Mrs. Sweet mentioned above was an adult, surrounded by millions of other adults, libraries, the Internet, places of worship, bars, supermarkets, or other places where this kind of thing could be discussed. Oh yes, then there are also schools and continuing education courses. And TV specials. And weblogs.

And, Mrs. Sweet is not alone. Quoting that article again,

At current rates so far this year, RealtyTrac expects foreclosure filings to hit two million in 2007, or roughly one per 62 American households — a rate approaching heights not seen since the Great Depression.

So, this is to me the most surprising and curious part of this whole situation. In this day and age, how can it be that two million households, probably more like 4 million people, could be so naive that they would make a $100,000 or more purchase, probably the largest amount they had ever dealt with in their entire lives, with so little caution or so little getting good advice?

And, this is not just on the poor end of the spectrum. There were also people buying million dollar homes that couldn't afford them by any rational scenario -- people that already owned $400,000 homes, lived in good neighborhoods with good schools and libraries, and probably had high-speed internet to their home and wireless connections to their four laptop computers.

So, while poverty can surely diminish available resources or make them more expensive, it's not an adequate explanation for this. We know predators are out there and greedy - that's nothing new to this century or this country.

But, why did all that social wisdom, and all those resources in the books and internet, have so little beneficial effect?

There is an obsession in education with math and science and problem solving, but it seems those don't help much without this lesson:

"When you are thinking about doing something new, first seek out the tribal elders and talk to them and get their advice."

In turn, when I consider why people don't do that, one thing that keeps coming up is the wide-spread social attitude that we are not responsible for the bad results of our own actions, or expected to have or use any foresight or planning or judgment.

In other words, "Ice causes accidents."

We need to dig deeper into how this total collapse of responsibility has worked its way into being so commonplace. I have a suspicion that the term "freedom" has been confused with "anarchy", and that what people think they can obtain is "freedom from consequences of their own choices and actions."

Rich people seem to think that their wealth, or their attorneys and doctors and pills can provide freedom from consequences. Poor people can blame bad schools, or poverty, or fate for being trained repeatedly that any sort of self-control is either impossible or pointless.

That concept of "freedom" is more like the freedom of a jellyfish or slug from the "constraints" of having bones that are not flexible.

The truth is that you are free to run a lot faster with bones than without them. And, without bones, you are free to be a free lunch to whatever predator comes by next.

We get to pick what kind of freedom we prefer.

Pick wisely.


also see my post from last December: Honey, We're losing the house.
Quotes from that:

[Consultation] is also an intervention point, a leverage point, a place were we can fix something. We could take some of those same people who figure out how to sell us cars and pills, and put them to work selling us on the simple idea that it's ok to ask for help, and it's ok to not know everything, and it's ok to need each other to get by.

I think that would be a better investment than many others we're currently doing trying to clean up the messes that avoidable bad decisions have created.

There are some initiatives underway. One example is the Baha'i faith's emphasis on the process of local "consultation" among regular people trying to figure out how to make hard decisions in an increasingly complex world. In my mind we need a lot more energy put into such initiatives by many more groups, more collaboration, more social networking.

In it's own way, that attention will produce an "emergent" solution to many problems that formal analysis and huge government programs would never address.

Put another way - on a personal, corporate, and national level, it's a really bad idea to toss overboard things like integrity, honesty, self-discipline, and respect for wise people (some of which may be old people or even dead people..) It's a bad idea to be so taken with "face" and "pride" that one can't consult with others on big decisions. That's a bad road to go down. The consequences will always come back to haunt you.

Oh, and one last thing. Today's Washington Post's article on the mortgage crisis has this advice.

And beware of mortgage rescue scams.

"The worst thing people can do is bury their heads in the sand," said Jean Constantine-Davis, a senior attorney for AARP Foundation Litigation, a legal advocacy group in the District. "The second-worst thing is dealing with people that are making promises that will make matters worse."

Yep, now the people who show up with a deal too good to be true to rescue those who fell for the first trap can be actually setting a second trap. Now is a time to be very very careful.

Related Post: Mental Fog causes 100 car pileup

(photo by crowbert )

Why do smart people do dumb things - Countrywide

Countrywide Financial Corporation is the latest case study of how smart people do dumb things. What is surprising, in retrospect, is that failures of this magnitude are not studied with the zeal that commercial airline accidents are studied. After all, probably as many people are hurt or killed by the indirect effects.

Still, are we learning from experience? Or simply repeating the same mistake over and over? Airliners use cockpit simulators to train pilots to avoid errors -- what do we need for CEO's and average home buyers?

What comes to mind is a short poem by Shel Silverstein " The Slithagadee. I can find many variations of it on-line, so I'll just quote it as I remember it:

The Slithagadee.

Oh, the Slithergadee
Came out of the sea.
He caught all the others,
But he won’t catch me.

No, you won’t catch me,
You old Slithergadee.
You caught the others,
But you wo...

—Shel Silverstein

Anyway, here's a few facts on Countrywide Financial from today's LA Times. My excerpts focus on two things:

1. the psychology of feeding frenzy and how, as with "only a foot" of water on the road, you can find your car swept away, and
2. How "systems" effects mean everything affects everything else -- there is no immunity.

Credit crunch imperils lender

Worries grow about Countrywide's ability to borrow -- and even a possible bankruptcy.

By E. Scott Reckard and Annette Haddad
Los Angeles Times Writers

August 16, 2007

[Excerpts]

Angelo Mozilo, chief executive of Countrywide Financial Corp., has been fond of saying that the company became America'sNo. 1 mortgage lender by being smarter than the competition.

In a harangue to Wall Street analysts early last year, the combative Mozilo denounced upstarts for shoveling out too many loans, too easily, to too many people with bad credit, heavy debt and skimpy income.

"I've been doing this for 53 years, and I've never seen that situation sustained," said Mozilo, who co-founded Calabasas-based Countrywide in 1969. "Eventually they gag on it."

Dozens of home lenders have indeed collapsed as defaults have surged on loans made to people with poor credit during the housing boom and as Wall Street has turned off the money tap that funded many of those sub-prime mortgages.

But rather than emerging bigger and stronger as Mozilo predicted, Countrywide -- which made 1 of every 6 home loans in the U.S. in the first half of this year -- now finds itself battling not just its own growing defaults but also a widening credit crunch stemming from the nationwide sub-prime mortgage meltdown.

On Wednesday, the company was said to be having trouble borrowing money on a short-term basis, securities analysts discussed the possibility of a Countrywide bankruptcy and the firm's stock price tumbled 13%, bringing its loss for the year to 50%.

An insolvent Countrywide could also do more damage to the country's already weakened housing market, said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication based in Bethesda, Md.

"It would be a huge shock to the U.S. housing system and the mortgage system as perceived around the world -- and make an already bad situation terrible," Cecala said....

"The problems Countrywide is experiencing has nothing to do with its mortgage business," Cecala said. "By all measures, Countrywide is a well-run, profitable company. What they're finding out is that although they thought they had diversified funding sources, nothing is diversified in a worldwide credit crunch like we're in now."

In 2003, old-fashioned 30-year loans with fixed interest rates and substantial down payments made up about two-thirds of Countrywide's loans, said mortgage executive Bill Dallas, whose Agoura Hills-based sub-prime lender Ownit Mortgage shut down early this year.

By last year, only one-third of Countrywide's loans were of the traditional type, with the rest spread among the more exotic loan variety, Dallas said. He said Mozilo, who had often been quick to criticize rivals for being overly aggressive, had found himself immersed in the same businesses as his competitors.

"Every section of the business that has failed, they're in there big time," Dallas said.

At some branches, managers would buy lunch every day for their staff to keep them at their desks working.

At the height of the boom in 2004 and 2005, it wasn't uncommon for a typical Countrywide loan officer to sell 20 sub-prime loans a week. "It was a feeding frenzy," said one former Countrywide employee who said he joined the company in 2004 and, after six weeks of training, made $6,000 to $8,000 a month. As fast as loans could be signed, they could be sold to investors, according to the former employee, who declined to be identified....

Over the years, Mozilo's pay packages -- $48.1 million in 2006 alone -- ballooned along with his company's fortunes.

Countrywide also bills and collects payments on $1.4 trillion in mortgages for itself and other lenders. What's more, Countrywide is the largest customer for Fannie Mae, the big government-sponsored mortgage buyer. More than one-third of all mortgages sold to Fannie Mae comes from Countrywide.

"The question is, is Countrywide too large to fail? Will the Fed allow it or will it need to step in and bail it out?" Cecala said.

A bailout of Countrywide would make the government's efforts to save automaker Chrysler in the 1970s look puny.

"Countrywide is more important than Chrysler was back then, particularly given the fragile state of the economy and so much tied to housing," Cecala said.

Of course, what's not mentioned is why a healthy company needs to borrow money in the short term to survive. Where did they put all their rainy-day savings from prior profits? Hmm. IT does sound like the "hedge funds" who were so sure of profits that they borrowed against the value of everything they owned and bet it on this "sure thing" -- except the nag broke a leg on the far turn of this track.

If so, this is really no different than the employee who "borrows" $10,000 from the bank till at lunchtime to go bet it on a sure thing and return it by the end of the day and no one will know.

Maybe we need to learn to recognize the typical signs and symptoms of unjustified reliance on ... hot air ... as a basis for business decisions or governmental policy decisions.

What is particularly dangerous, as I've pointed out before, are positive feedback loops, where the "reason" something is becoming more attractive is that "it's becoming more attractive." This phenomenon accounts for some Hollywood fame, where the only reason one can see for why this unremarkable person is famous is that they are famous and it feeds on itself.

That may even be a great strategy to make a buck on as it rises, as long as you stay aware that on any morning the wind may shift and suddenly it is falling just because it is falling, and the spiral up becomes a death spiral down.

Also, "amplifiers" are wonderful things, used correctly. For financial investments, "leveraging" you funds so that you only have to actually shell out 5% of the cost of something (right now) to "buy" it can make sense if the "it" will make you piles of money rapidly. Again, the problem comes in feedback, where you start amplifying the amplifier, etc.

Before long this vortex "takes on a life and momentum of its own", for exactly the same mathematical reasons that a hurricane or tornado starts sucking in surrounding air and "feeding on" the energy in it to become even larger, which lets it feed more, etc.

But, all such "fools gold" will have to turn around some day. This sort of thing is like "silly putty" or cornstarch fluids, that act "solid" if you keep moving fast, but turn instantly to "liquid" if you ever stop moving. (YouTube video worth watching of college students dared to run across such a vat of "liquid". This is great! )

In other words, this is a "good idea" only if you are a heart-beat away from an exit strategy. Otherwise, it is a pure pyramid or "Ponzi scheme" and the company "built on" it is a "house of cards."

There are many examples of such spirals that appeared as magical money machines and seemed from within that they would never end, like a credit card on a company that never remembered to bill you. Then, one day, the accumulated bill arrives. And you better have saved up enough "profit" to be able to bail out, and not sent it all to stockholders on re-invested it.

Tulips were the international craze in the 1700's, I think. Dot.com's. Pet Rocks. The Hula Hoop, 5 cents worth of plastic that sold for $2.00. Actually, the company that made Hula Hoops lost money, because they put everything they had earned into a brand new factory for making even more Hula Hoops, just as the craze ended.

So, again, the "hazards" of this strategy are well known in the business literature. The "right" way to win money in the long run is known. And the reality, that frail humans succumb to the "momentum" is also well documented.

But human ego is a fickle friend. "Just one drink." "Just one more investment and then we'll get out." "Just wait until it comes back up to where we bought it, and we'll sell it without recognizing a loss. "

Oh, the Slithergadee
Came out of the sea.
He caught all the others,
But he won’t catch me.

No, you won’t catch me,
You old Slithergadee.
You caught the others,
But you wo...

This is why a long solid history of "consultation" with a very diversified group of friends, preferably of different cultures and located in different counties, is a good idea. In fact, it's the only strategy I'm aware of that can prevent this kind of localized shared blindness, group-think, from taking the reins away from even very strong, very solid thinkers.

And, even then, that won't work if you reserve the right to just ditch you best friends and redefine them as "enemies" with "negative thinking" when they tell you that you are wrong and making a terrible mistake.

Of course, it never looks like a mistake from inside to the person making it. Think about it. That's the subtlety our school system doesn't train us for. Humility, or just experience ( which is wisdom acquired just after it was needed. ) Maybe a simulator game.

Here's the key lesson: the mind is a fickle friend. Your "obviously" creating sense has blind spots that can ruin your whole day.

Or, as Dennis the Menace said, sitting in the corner being punished - "How come dumb stuff seems so smart when you're doing it?"

Karl Weick teaches a need for "mindfulness" that maybe our "mental model" is outdated, but thats a fancy way of saying the same thing. Neither IQ nor will power nor genetics nor training can overcome the ability of people to fool themselves.

Only a wide grid of interlocking people is robust against such vortices of "easy money". And "wide" has to mean diversified, over a wide area of the planet, where some are not within the range of the "obviously" perception-distorting perceptual vortex.

This is a very common phenomenon, but we, as humans, remain in denial or think we are somehow different and immune to it.

No, you won’t catch me,
You old Slithergadee.
You caught the others,
But you wo...

Sources for the Slithagadee.

"The Norton Book of Light
Verse" (page 314)
source.