Today, the OCC’s deputy comptroller for public affairs Robert Garsson jumped off the train of government officials suggesting that protecting consumers’ rights would be bad for the economy. Acknowledging that the OCC had played a role in the blocking the president’s plan to create a consumer protection agency independent of other government agencies, Garsson acknowledged the stupidity of the idea that an informed, protected consumer base was bad for an economy made up of those consumers.

“It’s unlikely there will be any meaningful conflicts between safety and soundness and consumer protection,” Garsson said. “The potential for conflicts is very rare.”

That’s right, a government official finally acknowledged that protecting consumers from predatory companies or deliberately non-transparent contracts and relationships might be good for the soundness of an economy still recovering from a tailspin caused by fraud, a lack of consumer understanding, non-transparent markets and financial instruments so complex that even traders didn’t understand them.

Garsson continued.

“It’s hard to say in the abstract what sort of conflicts could arise, though I don’t think there will actually be many instances in which there is a genuine conflict,” he wrote.”But where a conflict does arise, I don’t think that a consumer protection regulator should be allowed to prescribe a standard that reduces the safety and soundness of an institution. And I’m not talking about consumer protection provisions that simply reduce a bank’s profitability — that’s not something I would characterize as conflicting with safety and soundness, and a statutory provision could say so.”

That’s right, someone in the government acknowledged that a bank’s profitability wasn’t the sole standard for safety and soundness of the economy! That is some change to believe in.

1. The poor are far more unemployed than the rich.
It’s not enough that they make more money anymore — despite everything that economics might normally predict, those with higher incomes are less likely to be unemployed during this recession. A new study from Northeastern University shows that among the top 20 percent of households — those making more than $100,000 — the unemployment rate is about 3.5 percent. In the poorest 10 percent of American households — those making under $12,800 a year — the unemployment rate is 30.8 percent. No wonder all those AIG bankers were threatening to leave their jobs in the midst of the recession: For them, there never was one.

2. The jobs that used to exist aren’t coming back.
Economists predict that at least 25 percent of the 8.4 million jobs that have disappeared thus far won’t be coming back no matter how good the economy gets. In fact, with job creation expected to be, at best, 133,000 new jobs per month over the next year — and 100,000 new people entering the work force every month — it will take more than 20 years at this rate to replace all the jobs that were lost in the last two years.

3. Corporations now know exactly how much money they save by firing workers.
And although the employment figures show that the rich stayed employed and the lowest-wage workers — who do most of the productive work in the economy — did not, companies laid off so many lower-paid workers that they are more flush with cash than Scrooge McDuck — to the tune of $1.19 trillion. But since people who kept their jobs have been busting their humps to keep them, productivity rates went up during the recession — which means your corporate overlords know exactly how hard they can work you for how little pay without reducing output. Get used to busting that hump.

4. Job growth is already not meeting economists’ predictions anyway.
Despite economists’ already-less-than-rosy predictions about job growth, only 95,000 jobs were created last month. So, we’re already 38,000 jobs — or more than a month — behind the growth we’d need to make back the 8.4 million lost jobs in 20 years.

5. Even Republicans don’t pretend that living wages exist for many Americans.
Nearly one in eight Americans currently depends on food stamps, and many of those people are working Americans (including some members of the military). Half of the families enrolled in food stamps are working, though fully 90 percent of those receiving benefits are below the federal poverty line. Everyone from Sen. Richard Lugar (R-Ind.) to George W. Bush and his food stamp administrator Eric Bost to former Wisconsin governor and presidential candidate Tommy Thompson is a food stamp booster for the working poor — the people who make minimum wage but can’t make ends meet. But you can have a job in this country and still go hungry — and some people who acknowledge that think the best solution is just to give companies more tax breaks.

Under Eurozone rules, countries are required to keep total government debt to 60 percent of GDP and government budget deficits to 3 percent, in order to maintain the value of the euro, Eurozone-wide interest rates and general stability. Greece, it turns out, was always fudging its budget deficit numbers by “mistakenly” leaving things out — meaning that its budget deficits were inevitably above 3 percent and, in 2009, closer to 12 percent.

But even those figures aren’t accurate, because the Greeks used complex financial transactions, designed by Goldman Sachs, to kick the debt can down the road even further. Goldman had the Greeks issue bonds, valued in dollars, in yen in exchange for bonds that paid out in euros. But rather than receiving the euro-denominated bonds at market prices, Goldman made up an exchange rate that allowed the Greeks to look as though they were only engaging in a currency swap when, in effect, they were getting more than a billion more than they should have from the trades in credit. The credit wasn’t counted against their debt or deficit limits — though it will be, when the bonds they began issuing in 2002 begin maturing in 2012 and 2017.

It’s likely that Goldman made a killing on the commissions for the swaps, and then sold the swaps to a Greek bank for even higher profits.

The swaps, and the non-disclosure of them, are both perfectly acceptable within the Eurozone reporting rules. But what’s legal, as the United States already found out, isn’t the same as what is good for the economy. The Greek debt — which Goldman not only enabled but expanded — may throw Greece, if not the Eurozone, into a financial tailspin if the crisis isn’t resolved. That crisis is expected to trickle back to the United States, where our economy has only barely started down the road to recovery. And Goldman, with its $13 billion profit in 2009, will still be sitting pretty.

While the national unemployment rate of 10.2 percent is a sobering reminder of the depth of this recession and the protracted timeline a recovery will take, the challenges posed by long-term unemployment are far greater.

“We are breaking every record post-Great Depression on long-term unemployment,” said Heidi Shierholz, an economist with the Economic Policy Institute. Right now, around 35 percent of those without jobs have been unemployed for more than six months, a figure that adds up to 3.6 percent of our country’s labor pool.

[Economy]The result is a crisis unlike anything seen since the 1930s. “The numbers are unprecedented,” said John Challenger, CEO of Challenger, Gray & Christmas, a human resources consulting firm. “What it suggests and it bears out in reality is that as people become long-term unemployed, they become damaged goods in the job market.”

While economists are divided about the best way to combat this growing problem, most agree on how it happened. The current recession exacerbated an ongoing economic shift from manufacturing to a service base. Troubles faced by Detroit’s Big Three automakers fanned the flames, rendering the skills of many workers obsolete. Even as local economies withered on the vine, workers were rendered immobile, locked into their homes by the real estate crash.

Long-term unemployment is dangerous because it can have a snowball effect, says Kevin Lowden, managing economist at the Milken Institute. The longer someone is out of work, the more likely he or she is to default on his or her mortgage, even low-risk borrowers at the time when the loan was originated.

“You also see significant issues in terms of the effect on consumer demand due to the dramatic increase in savings rate,” he said. While this increase in savings is good for the economy long-term, right now that frugality comes at the expense of consumer spending that could lead to employers hiring more workers.

This epidemic of long-term unemployment also puts an added burden on government coffers. “This is direct drain on budgets in two ways,” said Dean Baker, co-director of the Center for Economic and Policy Research. Government doesn’t collect income tax on laid-off employees, and when these workers go onto unemployment or disability rolls, this creates an additional drain on the system.

For instance, the increase in workers applying for disability has shot up. Currently, some 7 million adults are on disability, an influx so overwhelming that the trustees of the Social Security program predict that the disability fund will be emptied by 2017 if nothing changes.

This mass migration to disability status is primarily a function of our employer-based health care system, according to Lawrence Katz, a professor at Harvard University. “If you have a pre-existing condition, even if you get another job there will be problems with your coverage,” he said. “The one place you can go is disability, where you get onto Medicare. And once they go on, they basically never come off.” Health plans currently under debate in Congress would subsidize low-income citizens and families, which would include the unemployed, as well as ban insurers from eliminating pre-existing conditions, which make going off disability feasible. Currently, those jobless for a long period of time have nothing to fall back on after their COBRA benefit expires.

Even if those who have been unemployed long-term make it back into the workforce, their future earning power suffers. There’s some evidence that post-layoff retraining can mitigate this, but only under certain circumstances. A study out of the University of Chicago’s Harris School of Public Policy Studies found that attending one year of community college gave displaced workers a 5 percent wage boost. Unfortunately, the vast majority of workers enrolled in such programs don’t stick around for even a semester, let alone a whole year.

However, for workers that stick it out and specialize in vocational training, science or mathematics, the returns can be even greater. The study’s authors found a 10 to 15 percent jump in wages for this subset of workers, as well as higher returns for those who already had some degree of college education prior to their participation in the program.

To this end, much of the work that is being done to combat long-term unemployment focuses on retraining workers so that their skills are more in alignment with today’s service-based economy. “The economy has changed fundamentally and our workforce system has not,” said Andy Levin, Michigan’s chief workforce officer, who runs that state’s No Worker Left Behind program. “Most people who lose their jobs can’t replace their standard of living without getting significant training because of the rapid and ongoing march of technology and globalization,” Levin said.

No Worker Left Behind began operating in August 2007 and is funded primarily by the Workforce Investment Act, which was created in the 90s and received $1.25 billion in stimulus funding to help dislocated workers. Since then, No Worker Left Behind has trained 102,000 at-risk or jobless Michigan residents for jobs in growing industries like health care, technology and transportation.

Levin has put into place bureaucratic efficiencies, such as standardizing which types of jobs are eligible for training subsidies throughout the state and streamlining the process that lets jobless workers continue to receive unemployment benefits while pursuing additional education. When the program conducted a survey this April, they found that nearly half of the workers who had completed training had landed a job, 86 percent in a field that related to their training.

Other economists say that programs such as No Worker Left Behind, while helpful, don’t do enough to address the root of the problem: the overwhelming lack of jobs. Although the pace at which companies are laying off workers has slowed, companies aren’t rehiring, which means there are still too few jobs to go around. Traditionally, small businesses are the first to hire when the economy picks up steam after a recession; however, small-business financing has dried up due to the credit crunch, preventing entrepreneurs from expanding and adding employees.

“The crisis is just so big at this point with 10.2 percent unemployment that we’re thinking about new direct job creation proposals because the scale of the problem is so large,” said Allegra Baider, senior legislative associate at the Center for Community Change. That group, along with a host of other advocacy and labor organizations, recently released a joint statement calling for new investment in job creation in fields such as infrastructure and education.

“A top priority ahead of job training is we’ve got to fix the labor market and start generating jobs,” said the Economic Policy Institute’s Heidi Shierholz. The Obama administration plans to hold a jobs summit next month examining incentives like tax credits to encourage businesses to hire new workers.

John Challenger of Challenger, Gray & Christmas acknowledged that even if such programs succeed, many Americans will have to make adjustments. “One of the things that’s happening is a steady career at one large company or in a company town is no longer available, and people at all levels can no longer think of their careers as always progressing upwards in income.” Even as they learn new skills, employees also have to be taught how to be flexible so they can adapt to the twists and turns of the 21^st-century economy.

By the end of October, Angelides said at this morning’s first FCIC meeting, the panel will “be sending letters to companies referenced in the statute to make sure records are preserved.”

The FCIC was given a $5 million budget as well as 22 separate financial issues and products to investigate as possible causes of the economic meltdown. (A list of all 22 is available after the jump.) Angelides said the panel soon would “boil those [22] down” and give the public a sense of in what order they would tackle.

As it moves forward — potentially striking fear in the hearts of any bank executive who’s considered turning on the shredder — the FCIC plans to open a full-time Washington office and hire more staff members. The panel’s senior aide has already started work: Thomas Greene, a 25-year veteran of the California attorney general’s office and leader of the civil prosecution team that took on Enron.

The FCIC’s 22 areas of focus cover the horizon of financial practices that have come under fire for helping to encourage unsustainable risk, subprime mortgage lending, and the securitization of just about everything under the sun. Indeed, its biggest obstacle in leaving no stone unturned may not be the political ties of its members or Congress’ uncertain regulatory reform effort, but rather the rules for issuing subpoenas.

The law that created the FCIC, which is split 6 to 4 in favor of Democratic-named members, specifies that subpoenas must be approved by at least one GOP-appointed member in order to be valid. Thus, Republicans could theoretically stave off a summons to a former Bush administration official by withholding their votes and pressing for private discussions rather than public testimony.

The bipartisan 9/11 Commission, which was evenly matched between Democrats and Republicans, accepted private, time-constrained interviews with former President George W. Bush and Vice President Dick Cheney, while former President Clinton and Vice President Al Gore agreed to take questions in public without a time limit.

The FCIC’s mission, according to the statute that created it, is “to examine the causes of the current financial and economic crisis in the United States, specifically the role of”:

(A) fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector;
(B) Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;
(C) the global imbalance of savings, international capital flows, and fiscal imbalances of various governments;
(D) monetary policy and the availability and terms of credit;
(E) accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;
(F) tax treatment of financial products and investments;
(G) capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;
(H) credit rating agencies in the financial system, including, reliance on credit ratings by financial institutions and Federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;
(I) lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;
(J) affiliations between insured depository institutions and securities, insurance, and other types of nonbanking companies;
(K) the concept that certain institutions are `too-big-to-fail’ and its impact on market expectations;
(L) corporate governance, including the impact of company conversions from partnerships to corporations;
(M) compensation structures;
(N) changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;
(O) the legal and regulatory structure of the United States housing market;
(P) derivatives and unregulated financial products and practices, including credit default swaps;
(Q) short-selling;
(R) financial institution reliance on numerical models, including risk models and credit ratings;
(S) the legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;
(T) the legal and regulatory structure governing investor and mortgagor protection;
(U) financial institutions and government-sponsored enterprises; and
(V) the quality of due diligence undertaken by financial institutions

Brooksley Born, who fought unsuccessfully to regulate derivatives during her years at the helm of the Commodity Futures Trading Commission (CFTC), singled out “the failure of government to oversee the financial markets” as a central cause of the meltdown that began last year. “Experience has now clearly shown that financial markets cannot self-regulate,” Born said, urging her colleagues on the panel to “identify and examine regulatory gaps and failures so that they may be eliminated.”

But while Born urged Congress and the Obama administration to press ahead with strong new rules of the road for Wall Street, fellow commissioner Keith Hennessey declared that reform legislation has a slim chance of passing this year.

Still, Hennessey added, the panel’s deadline of December 2010 to release its final report risks making its conclusions irrelevant.

“We cannot predict when Congress will act, but we’ve been given a job to do and part of that job is to be as useful to lawmakers as possible,” said Phil Angelides, the panel’s Democratic-appointed chairman. Members of the Financial Crisis Inquiry Commission, as the panel is formally known, will “structure our work with knowledge of the congressional calendar,” Angelides added.

Lawmakers originally hoped that the House would act on regulatory reform before the fall, but the House Financial Services Committee postponed its vote on the White House’s proposed Consumer Financial Protection Agency, likely until next month. The decision of Senate Banking Committee Chairman Chris Dodd (D-Conn.) to retain his gavel has been seen as a boost for financial reform’s prospects in the upper chamber, but FCIC members stressed the importance of keeping their work connected to — and independent from — the action on Capitol Hill.

“There’s no question that this commission had a political birth,” quipped former House Ways and Means Committee Chairman Bill Thomas (R-Calif.), now the FCIC vice chairman. But, he noted, one can stay defined by one’s birth or “get on with your life.”

Speaking to reporters after the FCIC’s first meeting, Thomas offered his own prediction that Congress would ultimately come down harder on a financial industry that is still weighing how much systemic risk to embrace. “It isn’t whether there will be regulation or not,” Thomas said. “It’s whether it’ll be regulation for the sake of regulation.”

Illustration by: Matt Mahurin

The time may be ripe for a shift in strategy as the foreclosure machine grinds on, and new foreclosure notices reach the troubling milestone of 10,000 per day.

A weak economy has added job losses and falling home values to the mix of toxic loans that prompted the crisis two years ago, making an already difficult situation even more severe. Government measures from foreclosure freezes to loan modifications have only served, so far, to stall the inevitable – and to create an ominous backlog of millions of pending foreclosures. Plus, more than one in five homeowners now owe more on their mortgages than their homes are worth, according to the real estate website Zillow.com. No one can predict with assurance whether those underwater homeowners will keep paying on their loans, or take a walk.

Illustration by: Matt Mahurin

And as bad as things may seem now, there’s still a long period of pain to come: A steady drumbeat of foreclosures, and a stagnant housing market, for the next several years ahead, at a minimum. Some experts see an even more dire picture: Five to 10 years, in California alone, of record high foreclosures. No significant home prices increases nationwide on the horizon in the next year. Or the year after. Or for as long as the next five years. Some 9 million foreclosures are expected by 2012.

While economists search for signs of green shoots, “no one’s really saying anything about this,” noted Guy Cecala, publisher of Inside Mortgage Finance, a Bethesda, Md. publication that covers the lending industry. “There’s really no good news out there, other than we can’t possibly get in much worse shape than we already are.”

Given this bleak scenario, some say it’s finally time for more forceful action. Congress and the Obama administration need to move boldly to stop foreclosures, requiring lenders to go beyond what Calculated Risk dubs “extend and pretend” repayment plans, and actually write down loan balances. And the Obama administration should move quickly to bring more players to the table to pick up the pace of those loan modifications – including the Internal Revenue Service. Servicers might be more aggressive about writing down loans if they’re sure it won’t create tax liabilities for trusts they represent, an impediment that currently stands in the way of getting more mortgages modified, said Kathleen Engel, a Cleveland State University law professor who studies mortgage securitizations.

There’s more to be done, Engel said: Expand the benefits of the homebuyer tax credit up the income ladder, offering it to move up buyers with existing homes as well as first time purchasers. Even direct government loans to borrowers, to keep them in their homes, shouldn’t be dismissed.

“Now is the time to do something,” Engel said. “There are a lot of things to be very concerned about right now. There are people underwater who aren’t making good on their home equity loans. With job losses increasing, more people aren’t able to make their mortgage payments at all. And REOs (Real Estate Owned properties) are driving down home prices. We really need to be trying some new things.”

Engel’s view was echoed by the Obama administration, which recently chastised lenders for their lack in progress in modifying loans. “We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share,” Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan said in the letter, which was sent to to 25 mortgage-servicing firms.
Only about 270,000 borrowers have been offered loan modifications under Obama’s Making Home Affordable program, the Treasury Department says — a far cry from its much more ambitious goal of helping 4 to 5 million homeowners rework their loans.

Geither and Donovan weren’t the only ones speaking out. As TWI reported, a small band of House Democrats last week urged for more action beyond voluntary loan foreclosures. Senate Finance Committee Chairman Chris Dodd (D-Conn.) and 19 other Senators also petitioned Geithner to adopt a more aggressive strategy for loan modifications specifically for homeowners with option adjustable rate mortgages scheduled to reset to higher payments over the next four years. In addition, the Washington Post reported the Treasury Department also is putting together a “Plan C” – a new strategy – to head off defaults in commercial real estate and to tackle delinquencies tied to job losses.

It seems like a full frontal assault. But it may not be enough.

SLOWING DOWN THE INEVITABLE

In reality, there’s little political will to force lenders to write down loan balances. Congress defeated mortgage “cramdown” legislation, which would have allowed bankruptcy judges to cramdown, or reduce, the terms of a mortgage to keep a borrower in his home. The Obama administration stood by as the measure failed. Only that small group of House Democrats still wants to revive it. Bailing out homeowners still runs smack into the wall of moral hazard, in the public’s mind, and even the worsening crisis hasn’t changed that. “I don’t know why this is still true, but people are willing to roll over and give billions of dollars to banks, and they get pissed off about the idea of their next door neighbor getting a break,” said Sean O’Toole, president and founder of ForeclosureRadar.com,which compiles foreclosure data for the California market.

Instead of pressing for more loan modifications, it may be time to conclude that all the programs thrown at the mortgage problem haven’t done much to fix it. The most infamous, Hope for Homeowners, intended to help 400,000 borrowers, resulted in just 25 loan closings. Various state and voluntary foreclosure freezes only gave a pause to foreclosures. And most foreclosure prevention programs were created two years ago, when subprime loans were the major cause of foreclosures, not unemployment and a faltering economy.

These days, if you can’t afford your mortgage payment because you just lost your job, it really doesn’t matter whether you have a toxic Option ARM or a standard 30-year fixed loan. You’re still in default.

“The bad economy is what’s driving foreclosures right now,” Cecala said. “Even if there were no Pay Option ARMs out there, many homeowners would still be in deep trouble.”

Foreclosure prevention efforts, at this point, are “just slowing down the inevitable,” he added. “You can take a look at any one of these programs and you won’t find a lot of value in it.”

The Obama Administration, for example, recently expanded the refinancing options available under Making Home Affordable, to include borrowers who are more deeply underwater on their loans. It sounds good -  but it’s unlikely to pan out, Cecala said. Borrowers may not qualify for refinancings, under new underwriting guidelines from Fannie Mae or Freddie Mac that are far stricter than when they originally applied for their loans. Or borrowers may have to pay such high fees or rates that it won’t make the refinancing worthwhile. In places like California and Florida, some homeowners are so far underwater they still won’t qualify.

THE NUCLEAR OPTION

The big question, as Cecala notes, is whether foreclosures can be stopped at all. Which brings up the nuclear option: Unleash the pent up foreclosures and get the pain over with. Consider the backlog in California alone. More than 3 million households are expected to end up underwater eventually, according to O’Toole. As of now, some 851,000 households are delinquent on their mortgages. Of those, 264,977 already have received a foreclosure notice – but their properties have yet to be sold at auction. Only 22,245 foreclosures were completed in June, Foreclosure.com said.

Given that possibility that half of the the 3 million underwater homeowners or more also will eventually lose their homes, that means that working through the entire backlog could involve between five to 10 years of record high foreclosure levels, O’Toole said.
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Nationwide, the picture isn’t much better. After hitting a high point of about 900,000 in November 2008, REO inventory, or bank-owned foreclosures, slowly decreased over the last six months, down to about 770,000 in May, according to RealtyTrac, an online foreclosure database.

But don’t get your hopes up just yet.

“We believe the reason for that decline is largely due to the various foreclosure moratoria and state laws extending the foreclosure process that have been in effect in recent months,” said Daren Blomquist, a RealtyTrac spokesman. “As some of those moratoria were lifted in March and April we saw a substantial spike in initial foreclosure notices and we believe that will translate into a spike in REOs as well over the next several months.”

The bad news continues:  “In addition, we believe there is still a pent-up supply of delinquent loans that have not even hit the foreclosure process yet because banks are taking longer to start the foreclosure process after a loan goes delinquent – probably partly because they are overwhelmed with the volume of delinquent loans and partly because they are more aggressively trying to modify or refinance loans rather than foreclose.”

Blomquist added that the “twin threats” of risky loans and high unemployment will ensure a steady drumbeat of high foreclosure activity, for at least the remainder of this year.

The radical approach would be to stop staving all this off, take the pain, push the foreclosures through the system without delay, and get to the bottom. In California, at least, that could clear out the foreclosure backlog in about two years, O’Toole estimated.

“I’m not necessarily advocating that we should simply dump all the foreclosures at once – I actually think that could be disastrous,” he said. “But I think dragging them out over the next 5 to 10 years is an equally bad choice.”

But if there’s little political will to bail out homeowners, there’s even less stomach for announcing a strategy to bail on them entirely. It’s not the sort of thing that can be said in pubic. Even if there’s some logic to it.

AN ENTIRELY NEW DIRECTION

And that opens the door for a third way.

Alan Mallach, a senior fellow at the National Housing Institute and the Brookings Institution, took a close look at the housing market in Phoenix, where prices have declined by as much as 60 percent in the past few years.  Houses that sold for a quarter-million dollars now go for $90,000 or so in the booming REO market. Buyers – both investors and individuals – are realizing that at those prices, they have options, if they are willing to be patient. They can hold on to those homes for six or eight years, rent them out until they earn their money back, and wait until they can possibly sell them at a profit.

Most importantly, the new owners often are more than willing to rent back the homes to their former owners, a situation that benefits both sides. Borrowers can stay in their homes, with rent payments they can afford. The homes don’t sit vacant, abandoned, or vulnerable to vandalism, which can drive down surrounding property values. “You don’t kick the person out,” Mallach said. “And many of the investors say it’s an advantage not to have to look for a new tenant.” The situation, he said, provides evidence of “the beginning of some sort of leveling off that’s going on” in neighborhoods hit with foreclosures, at least in Phoenix.

Based in that experience, Mallach these days reminds local governments and neighborhood development groups not all investors are enemies, despite their reputations. Communities can both encourage investors as partners in buying and fixing up bank-owned houses – and warn them they’ll come down hard if they sink too far into speculation. And there are more encouraging signs at the local level. As Philadelphia, and some other cities have found, mandatory face-to-face foreclosure mediation between borrowers and servicers has proven to help avoid foreclosures, without dragging out the process.

A combination of these kinds of ideas – smaller scale, targeted to the needs of particular markets – may a quicker and more effective blueprint for tackling the crisis, especially in the absence of an aggressive government approach.

“Maybe we’re coming to the realization that we can’t loan mod our way out of this,” Mallach said. “There’s no magic solution. There’s no government riding in on a white horse to buy up all the bad assets.”

THE WILD CARD

Congress and the administration, in fact, haven’t exactly come up with anything “radical and bold” yet to tackle the crisis – and it’s unlikely they will turn around and do so now. Instead, Mallach noted, Realtors, the real estate industry, and some economists are spending unnecessary time and energy trying to declare a bottom to the crisis and look for any evidence of good news. It’s a great time to buy a house, they insist.

But there are still 9 million foreclosures expected by 2012, according to the Center for Responsible Lending. Goldman Sachs estimates 13 million foreclosures on all types of loans by 2014. And a continuing decline in home prices for the majority of housing markets is predicted for at least the next two years, says a report by mortgage insurer PMI.

As Malllach noted, policies to encourage renting are one option to counter all this. Even with all their limitations, loan modifications could be another. It’s “a really crucial time” to jumpstart them right now, said Cleveland State’s Kathleen Engel. Servicers finally have gotten fully staffed and up to speed, after a slow start. Clearing away potential tax liabilities for trusts due to aggressive loan modifications could help, she said. So could ratcheting up the pressure on lenders and servicers alike to complete more of them.

But challenges remain. REOs are driving away other sales, keeping downward pressure on home prices, Mallach noted. Stronger markets that have been immune so far to plunging home prices, such as New York City, New Jersey, and the Philadelphia suburbs, still remain at high risk for a downward spiral. Frustration keeps growing over a lack of progress in anything being done to stem foreclosures, creating anger in neighborhoods, and even a movement to put squatters in vacant homes.

Beyond that, underwater homeowners remain a huge wild card, with the chance that a significant number of them will stop paying their mortgages in the near future clouding any hope for a quick recovery.

When it comes to the foreclosure machine, things are probably even worse than they seem. That’s a starting point for any strategy to challenge a housing crisis isn’t ending anytime soon.

Now Gallup has a new poll that confirms this trend and, for the first time in 25 years of polling, shows that most Americans would prioritize the economy at the expense of the environment.

Gallup (click to enlarge)

Since 1985, Gallup has asked people annually if they would prioritize the environment “even at the risk of curbing economic growth” or the economy “even if the environment suffers to some extent.” Last year, people selected the environment by a margin of 49 percent to 42 percent. This year, the numbers essentially flipped: 51 percent chose the economy and 42 percent chose the environment.

Never before had the majority of respondents prioritized the economy, though the numbers were close at the end of George W. Bush’s first term as president.

While last week’s poll showed a significant decrease in environmental concerns, the shift in this poll is far more dramatic, with a clear reversal of previous trends.

Not surprisingly, responses differed sharply with party identification. Noteworthy are the data among independents, 50 percent of whom choose the economy, to just 42 percent for the environment:

Gallup (click to enlarge)

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In another clear reversal of previous trends, record numbers of people are following our Twitter feed. You can join them here.

iStockphoto

As the Obama administration moves forward with its green agenda, climate change concerns have been elevated to a top priority. Yet in the midst of the deepening economic crisis, public opinion appears to be moving in the opposite direction.

Illustration by: Matt Mahurin

A Gallup poll released last Wednesday found a six percent drop from last year in the number of people who are worried a “great deal” or a “fair amount” about global warming, after that number had been increasing for the previous five years. It also showed that after a similar five-year climb, the percentage of respondents who believe that the effects of global warming have already begun had decreased by eight points over the past year. A record-high 16 percent of Americans now believe that global warming will never occur; in more than ten years of polling, no more than 11 percent of respondents had ever expressed this opinion.

The day after the poll was released, Sen. James Inhofe (R-Okla.), the ranking Republican on the Senate Environment and Public Works Committee and a leading climate change skeptic, took to the Senate floor and celebrated the results as a triumph of information. “You should never underestimate the intelligence of the American people,” he proclaimed. “Sadly, that is exactly what the promoters of man-made climate fears have been consistently doing, and the American people have consistently rejected climate alarm.”

Inhofe attributed the shift in public opinion to new studies from prominent scientists that he said contradicted the prevailing climate change arguments embraced by former Vice President Al Gore and the Intergovernmental Panel on Climate Change. “A steady stream of peer-reviewed studies, analyses, real world data and inconvenient developments have further refuted the claims of man-made global warming fear activists,” he said.

Gallup (click to enlarge)

On the other side of the climate debate, the Center for American Progress’ Joseph Romm, an acting assistant secretary of energy under Bill Clinton and an influential environmental activist, also chalked the changing attitudes up to a change in propaganda, albeit with a different slant.

“Objectively, in the last two years, the science makes painfully clear that climate risk has grown sharply,” he wrote on his blog, Climate Progress. “That means if the public has come to the reverse view, it must be due to the messaging and the media and the misinformers.” While “the vast majority of scientists are consistently bad at messaging,” he explained, global warming skeptics have “never stopped their single-minded disinformation campaign.”

Yet public opinion experts have a different explanation for the poll results.

Michael Dimock, associate director of the Pew Research Center, argues that the economic downturn has trumped all other concerns. “In a time of economic crisis, people are less willing to focus on an issue like global warming because they see other, more pressing issues,” he said.

A similar phenomenon took place after the Sept. 11 terrorist attacks, Dimock explained. “In January 2002, a few months after 9/11, the public’s sense of priority on a whole host of important issues just fell through the floor,” he said. “They expected the government, almost to the exclusion of other important things, to focus on this issue.”

Karlyn Bowman, who studies public opinion at the American Enterprise Institute, published a comprehensive report in April 2008 that tracked polls on the environment and global warming over the past several decades. Her data showed that in the three years following the 9/11 attacks, fewer people said they were worried about global warming than in any other year in the past decade.

Similarly, she argues, the economic crisis has now pushed environmental considerations aside. “The economy is just swamping all other issues right now,” she said. “Nothing else comes close.”

According to Paul Mohai, a professor of environmental policy and public opinion at the University of Michigan, this trend fits into historical patterns. “It’s not unusual at all that when there are economic problems in the country, concerns about the environment drop off,” he said.

Pew Research Center (click to enlarge)

The current economic crisis, of course, is the most severe in decades, and the Gallup poll is not the first to show its effects on public attitudes toward climate change. Every January, Pew conducts a poll to assess people’s “top priorities” for the government to address. This year, global warming came out on the very bottom of the list.

“Out of the 19 things that we ask people to rank as priorities, it’s number 19,” said Dimock. Only 30 percent of respondents considered global warming a “top priority,” down from 38 percent in 2007 and 35 percent in 2008. Other non-economic concerns likewise tumbled down people’s list of priorities, including crime, immigration and “protecting the environment” generally.

While the economy is likely the leading cause of reduced concern about global warming, these experts also posit a number of other possible explanations. Bowman and Mohai argue that Americans tend to feel less worried about a problem when they believe that the government is addressing it. In this case, confidence in President Obama and the Democratic congressional leadership to tackle global warming has led people to feel less personally worried about the issue. “During Republican administrations, people’s concerns about the environment go up, and during Democratic administrations they go down,” said Mohai.

Bowman’s 2008 study backs up this claim. In every poll she recorded since 1971, people have had greater confidence in the Democratic Party to protect the environment. In the latest poll included in her study, a February 2008 Pew poll, 65 percent of respondents expressed greater confidence in Democrats on this issue, compared to just 21 percent for Republicans.

Dimock, on the other hand, points to Al Gore’s Oscar-winning 2006 documentary “An Inconvenient Truth” as a possible complement to the economic causes of the change in public opinion. He hypothesizes that as a highly polarizing figure, Gore may have solidified Democratic support for his environmental agenda while turning off some Republicans and independents. “You can imagine how, with people feeling like Al Gore was lecturing them on global warming, so to speak, they might have some sort of backlash, because it was no longer coming from a neutral source. It was coming from a political source.”

Nonetheless, Dimock believes that the struggling economy is far and away the primary cause of the shift in public opinion. “The 800-pound gorilla is this economic crisis,” he said.

Inhofe’s claim that the change stems from the propagation of new scientific studies that cast doubt on man-made global warming theories garnered little support from these experts. “If that is indeed happening, I haven’t seen it on the news, and I follow it pretty closely,” said Mohai.

So what might cause Americans to renew their global warming concerns? In the lingo of Bill Clinton’s 1992 campaign, it’s the economy, stupid.

“If and when people feel more comfortable about the economy turning around, their focus can turn to other issues,” said Dimock.

Just as President Obama has tied his economic agenda to an environmental one, it appears that Americans’ global warming concerns will rise and fall with their 401(k)s.

And here’s another reason to worry: The component of the plan that expands the refinancing option for struggling, but not delinquent, homeowners excludes those whose outstanding mortgages exceed 105 percent of their homes’ value.

Here’s a longer explanation. Currently, homeowners with mortgages valued below 80 percent of the home’s worth can — if the loans are backed by Fannie Mae and Freddie Mac — refinance those loans to take advantage of currently low interest rates. But there’s a ban on refinancing if the mortgage exceeds the 80 percent debt-to-value threshold. The Obama housing plan doesn’t remove that ban, it just bumps the ceiling up to 105-percent.

So if you owe $340,000 on your $500,000 home that’s now worth $380,000, you’re newly eligible for refinancing. (Debt-to-value = 90 percent). But if you owe $340,000 on your $500,000 home that’s now worth $320,000, you’re not eligible for refinancing. (Debt-to-value = 106 percent.)

The New York Times today translates the 105 percent ceiling into practical terms:

That means many homeowners in areas like Florida, Arizona and Nevada, where home prices have plunged the most, will not be eligible.

Put another way, the hardest hit areas will get the least help. Can someone explain that, please?