Wall Street Journal goes to bat for the vultures who want to steal your house
Tonight (June 5) at 7:15PM, I’m in London at the British Library with my novel Red Team Blues, hosted by Baroness Martha Lane Fox.
Tomorrow (June 6), I’m on a Rightscon panel about interoperability.
The tacit social contract between the Wall Street Journal and its readers is this: the editorial page is for ideology, and the news section is for reality. Money talks and bullshit walks — and reality’s well-known anticapitalist bias means that hewing too closely to ideology will make you broke, and thus unable to push your ideology.
That’s why the editorial page will rail against “printing money” while the news section will confine itself to asking which kinds of federal spending competes with the private sector (creating a bidding war that drives up prices) and which kinds are not. If you want frothing takes about how covid relief checks will create “debt for our grandchildren,” seek it on the editorial page. For sober recognition that giving small amounts of money to working people will simply go to reducing consumer and student debt, look to the news.
But WSJ reporters haven’t had their corpus colossi severed: the brain-lobe that understands economic reality crosstalks with the lobe that worship the idea of a class hierarchy with capital on top and workers tugging their forelacks. When that happens, the coverage gets weird.
Take this weekend’s massive feature on “zombie mortgages,” long-written-off second mortgages that have been bought by pennies for vultures who are now trying to call them in:
https://www.wsj.com/articles/zombie-mortgages-could-force-some-homeowners-into-foreclosure-e615ab2a
These second mortgages — often in the form of home equity lines of credit (HELOCs) — date back to the subprime bubble of the early 2000s. As housing prices spiked to obscene levels and banks figured out how to issue risky mortgages and sell them off to suckers, everyday people were encouraged — and often tricked — into borrowing heavily against their houses, on complicated terms that could see their payments skyrocket down the road.
Once the bubble popped in 2008, the value of these houses crashed, and the mortgages fell “underwater” — meaning that market value of the homes was less than the amount outstanding on the mortgage. This triggered the foreclosure crisis, where banks that had received billions in public money forced their borrowers out of their homes. This was official policy: Obama’s Treasury Secretary Timothy Geithner boasted that forcing Americans out of their homes would “foam the runways” for the banks and give them a soft landing;
https://pluralistic.net/2023/03/06/personnel-are-policy/#janice-eberly
With so many homes underwater on their first mortgages, the holders of those second mortgages wrote them off. They had bought high-risk, high reward debt, the kind whose claims come after the other creditors have been paid off. As prices collapsed, it became clear that there wouldn’t be anything left over after those higher-priority loans were paid off.
The lenders (or the bag-holders the lenders sold the loans to) gave up. They stopped sending borrowers notices, stopped trying to collect. That’s the way markets work, after all — win some, lose some.
But then something funny happened: private equity firms, flush with cash from an increasingly wealthy caste of one percenters, went on a buying spree, snapping up every home they could lay hands on, becoming America’s foremost slumlords, presiding over an inventory of badly maintained homes whose tenants are drowned in junk fees before being evicted:
https://pluralistic.net/2022/02/08/wall-street-landlords/#the-new-slumlords
This drove a new real estate bubble, as PE companies engaged in bidding wars, confident that they could recoup high one-time payments by charging working people half their incomes in rent on homes they rented by the room. The “recovery” of real estate property brought those second mortgages back from the dead, creating the “zombie mortgages” the WSJ writes about.
These zombie mortgages were then sold at pennies on the dollar to vulture capitalists — finance firms who make a bet that they can convince the debtors to cough up on these old debts. This “distressed debt investing” is a scam that will be familiar to anyone who spends any time watching “finance influencers” — like forex trading and real estate flipping, it’s a favorite get-rich-quick scheme peddled to desperate people seeking “passive income.”
Like all get-rich-quick schemes, distressed debt investing is too good to be true. These ancient debts are generally past the statute of limitations and have been zeroed out by law. Even “good” debts generally lack any kind of paper-trail, having been traded from one aspiring arm-breaker to another so many times that the receipts are long gone.
Ultimately, distressed debt “investing” is a form of fraud, in which the “investor” has to master a social engineering patter in which they convince the putative debtor to pay debts they don’t actually owe, either by shading the truth or lying outright, generally salted with threats of civil and criminal penalties for a failure to pay.
That certainly goes for zombie mortgages. Writing about the WSJ’s coverage on Naked Capitalism, Yves Smith reminds readers not to “pay these extortionists a dime” without consulting a lawyer or a nonprofit debt counsellor, because any payment “vitiates” (revives) an otherwise dead loan:
https://www.nakedcapitalism.com/2023/06/wall-street-journal-aids-vulture-investors-threatening-second-mortgage-borrowers-with-foreclosure-on-nearly-always-legally-unenforceable-debt.html
But the WSJ’s 35-paragraph story somehow finds little room to advise readers on how to handle these shakedowns. Instead, it lionizes the arm-breakers who are chasing these debts as “investors…[who] make mortgage lending work.” The Journal even repeats — without commentary — the that these so-called investors’ “goal is to positively impact homeowners’ lives by helping them resolve past debt.”
This is where the Journal’s ideology bleeds off the editorial page into the news section. There is no credible theory that says that mortgage markets are improved by safeguarding the rights of vulture capitalists who buy old, forgotten second mortgages off reckless lenders who wrote them off a decade ago.
Doubtless there’s some version of the Hayek Mind-Virus that says that upholding the claims of lenders — even after those claims have been forgotten, revived and sold off — will give “capital allocators” the “confidence” they need to make loans in the future, which will improve the ability of everyday people to afford to buy houses, incentivizing developers to build houses, etc, etc.
But this is an ideological fairy-tale. As Michael Hudson describes in his brilliant histories of jubilee — debt cancellation — through history, societies that unfailingly prioritize the claims of lenders over borrowers eventually collapse:
https://pluralistic.net/2022/07/08/jubilant/#construire-des-passerelles
Foundationally, debts are amassed by producers who need to borrow capital to make the things that we all need. A farmer needs to borrow for seed and equipment and labor in order to sow and reap the harvest. If the harvest comes in, the farmer pays their debts. But not every harvest comes in — blight, storms, war or sickness — will eventually cause a failure and a default.
In those bad years, farmers don’t pay their debts, and then they add to them, borrowing for the next year. Even if that year’s harvest is good, some debt remains. Gradually, over time, farmers catch enough bad beats that they end up hopelessly mired in debt — debt that is passed on to their kids, just as the right to collect the debts are passed on to the lenders’ kids.
Left on its own, this splits society into hereditary creditors who get to dictate the conduct of hereditary debtors. Run things this way long enough and every farmer finds themselves obliged to grow ornamental flowers and dainties for their creditors’ dinner tables, while everyone else goes hungry — and society collapses.
The answer is jubilee: periodically zeroing out creditors’ claims by wiping all debts away. Jubilees were declared when a new king took the throne, or at set intervals, or whenever things got too lopsided. The point of capital allocation is efficiency and thus shared prosperity, not enriching capital allocators. That enrichment is merely an incentive, not the goal.
For generations, American policy has been to make housing asset appreciation the primary means by which families amass and pass on wealth; this is in contrast to, say, labor rights, which produce wealth by rewarding work with more pay and benefits. The American vision is that workers don’t need rights as workers, they need rights as owners — of homes, which will always increase in value.
There’s an obvious flaw in this logic: houses are necessities, as well as assets. You need a place to live in order to raise a family, do a job, found a business, get an education, recover from sickness or live out your retirement. Making houses monotonically more expensive benefits the people who get in early, but everyone else ends up crushed when their human necessity is treated as an asset:
https://gen.medium.com/the-rents-too-damned-high-520f958d5ec5
Worse: without a strong labor sector to provide countervailing force for capital, US politics has become increasingly friendly to rent-seekers of all kinds, who have increased the cost of health-care, education, and long-term care to eye-watering heights, forcing workers to remortgage, or sell off, the homes that were meant to be the source of their family’s long-term prosperity:
https://doctorow.medium.com/the-end-of-the-road-to-serfdom-bfad6f3b35a9
Today, reality’s leftist bias is getting harder and harder to ignore. The idea that people who buy debt at pennies on the dollar should be cheered on as they drain the bank-accounts — or seize the homes — of people who do productive work is pure ideology, the kind of thing you’d expect to see on the WSJ’s editorial page, but which sticks out like a sore thumb in the news pages.
Thankfully, the Consumer Finance Protection Bureau is on the case. Director Rohit Chopra has warned the arm-breakers chasing payments on zombie mortgages that it’s illegal for them to “threaten judicial actions, such as foreclosures, for debts that are past a state’s statute of limitations.”
But there’s still plenty of room for more action. As Smith notes, the 2012 National Mortgage Settlement — a “get out of jail for almost free” card for the big banks — enticed lots of banks to discharge those second mortgages. Per Smith: “if any servicer sold a second mortgage to a vulture lender that it had charged off and used for credit in the National Mortgage Settlement, it defrauded the Feds and applicable state.”
Maybe some hungry state attorney general could go after the banks pulling these fast ones and hit them for millions in fines — and then use the money to build public housing.
Catch me on tour with Red Team Blues in London and Berlin!
If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
https://pluralistic.net/2023/06/04/vulture-capitalism/#distressed-assets
[Image ID: A Georgian eviction scene in which a bobby oversees three thugs who are using a battering ram to knock down a rural cottage wall. The image has been crudely colorized. A vulture looks on from the right, wearing a top-hat. The battering ram bears the WSJ logo.]
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Hob Gadling's First Execution
WARNING: GRAPHIC DEPICTIONS OF VIOLENCE
“He was begging,” Dream said. Mud squelched all around them, but he and Death made no sound as they walked over the already bloodied field. “I heard it.”
“He was begging to live, you idiot!” Death said.
“How do you know?” Dream looked at Hob Gadling, kneeling before a hoard of soldiers. His hair and beard were coated in blood.
“He’s writhing away from the man with the axe, not towards him!”
“The specifics were unclear. His lips seem to be leaking, his words were obstructed. And there is only one logical thing to hope for in this scenario.”
Death shook her head. It had barely been a decade since they’d visited the White Horse, and Dream had repeatedly pointed out — as if she could have failed to notice — that the world had only become a less appealing and more brutal place to live.
“But look at him!” Dream said. “Such misery, my sister! Surely he wishes for his torment to be over.”
“This is his torment.” Death said. “And he wishes, I am quite certain, to avoid it entirely.”
She sighed, her eyes running over the line of men on their knees in the mud, hands bound. A few met her eyes with a glimmer of hope. One beamed broadly, even as he shook and panted, blood running down his face. Hob Gadling did not look over. Though he had squirmed when they were first dragged out to the field where the masked man waited to end their short, brutal lives, he was now still. His gaze didn’t scan the assembled crowd for support or mercy but looked defiantly ahead.
“But how could any sensible creature wish to continue to live in a world such as this?” Dream asked.
“I’m pretty sure he doesn’t,” Death said. “None of them do. Not in a world such as this. It doesn’t mean they don’t want to live.”
“Hm.” Dream nodded toward the man who had beamed at Death. “That one likes this world. He still dreams of the glory he may yet achieve through his sacrifice. He would continue on, dying a thousand deaths for his lord if he were allowed.”
“See?” Death smile kindly at the doomed man. “Some sensible creatures have found a way to embrace their reality.”
“I would not call that sensible.”
Death gave Dream a sad smile that said she knew very well his callousness was mostly an act.
Dream knew each and every one of these kneeling men. He had witnessed their final nightmares and bestowed, where he could, more comforting dreams. It was a balance that took a careful hand — something Dream had had to cultivate more and more as civilizations grew. Waking from a lovely dream only to face the executioner could be a torture, while waking from the horrors of night to face the end of torments could be a relief. Forbidden as he was from interfering in the lives of mortals beyond his own dominion, Dream did his best with the powers he had.
And to others — those who would walk away from this field — he gave harsher visions so that they might not forget the blood they shed. He hoped that one day the horror of such practices would impel their end.
Though he was still certain that the next few minutes would prove him right, Dream felt no pleasure. Parts of him would die today. Each of the men kneeling in the mud had lived rich lives within his realm. One who had dreamed of glory now only hoped for a swift end. Another only wished for heat as the chill rain soaked through his tunic and dripped from his hair. Several held friendly faces and warm hands in their daydreams. Others’ minds had gone blank with fear, all thought and creation already stolen from them. Their dreams would die today, and those parts of Dream, too.
Hob Gadling had slept little these last few days. Dream had busied himself with others, honorably not wanting to act in any way that would push his wager with Death one way or another. But now, Hob’s mind was unignorably full and active, daydreams spinning out, vivid and loud. He dreamed of—
Dream turned from the sight immediately.
His own face looked out of the daydreams of Hob Gadling.
“You are ready, my sister?” Dream asked, trying to cover his surprise.
She nodded. “This century’s looking to be nearly as busy as the last.”
As a soldier walked toward Hob, Dream forced himself to watch. He never enjoyed seeing his sister’s work, especially not when it began like this. Humanity had always been prone to fits of violence, but in its growing civilizations, their capacity to enact horror had exploded. Still, Dream had not expected to feel so sick at the sight.
#
Relief and fear gripped Hob in equal measure as the man strode forward to seize him first. He’d’ve preferred to die in battle, sword in hand, but at least this would be over soon.
Let us meet here again, Robert Gadling…
A slight smile brushed his lips. At least the voice he’d heard a thousand times out of memory, held closely in his heart, would accompany him to his end.
…in this tavern of the White Horse, in one hundred years.
“Forgive me, lord,” Hob murmured. “I shall not make our meeting.”
The pretty face shone in his mind as clearly as if he’d last seen it yesterday. His slender, black-clad stranger, the scarlet jewel hung over his chest no match in glamor for those petal pink lips dressed with a mocking smile. Oh, how Hob had wished to meet him again when they were both ancient and put a different expression on that lovely face!
Hob had been lucky. He was not yet old, but he’d made it longer than most. All his mates who’d laughed so heartily at his boasts all those years ago had gone to their graves, wounded or worn down, their laughter long gone. But Hob still felt like his brash, young self, defiant in the face of death. He even looked young. His body had held up remarkably well through years of battle and banditry and plague creeping back through England, and, honestly, he felt that he could have held up many more decades — if not forever.
But now his luck had run out.
Hob looked up defiantly at the enemy who had condemned him. He couldn’t even remember now why they’d been trying to kill each other. The political machinations behind the throne were too distant, and Hob didn’t care. A moment later, he was forced to his belly, pushed down onto hard stone, his face hanging over the river’s edge. He was not important enough for his head to be set on a pike, frightening others away from his treacherous deeds. He was a simple soldier, a common mercenary, just unlucky enough to take a coin for services rendered on the wrong side of the battlefield, — to be swept out of the way with the fall of the axe more for convenience than political statement. Hob’s mortal remains would fall into the river like waste.
He had not even been given the curtesy of a blindfold.
Hob shut his eyes. In the darkness at the end of his life, he looked into a moon-pale face with storm grey eyes. He ignored the final flashes of the life he’d led up until then, regretting only that he would never meet his pretty lord again.
Then agony shattered all thought.
Hob was falling.
Seconds swelled to years.
Warm drops that must have been his own heart’s blood splashed onto his face before the river tumbled him into itself and he was drowning, still feeling the gaping wound at the base of his skull.
Then cold, wet, darkness.
#
Hob woke, thrashing in pain.
He gasped and cried out as the air scraped over raw flesh. He flailed out with both hands and the soft mud was like hot stones against his skin. He flopped like a fish on the river bank, naked, every inch of him scorched with a pain beyond even the most brutal interrogator’s imaginings.
For a long time, Hob just writhed and cried.
#
Death had too much work to linger, but Dream had followed the severed head as it floated down the river. The body of Hob Gadling had been tossed unceremoniously into a pit with a dozen others. Dream knew that the life force that kept the foolish man alive would spring from the brain, though he still severely doubted whether there could possibly be any desire for such a life. Dream had seen uncountable last-second horrors of decapitated victims and knew the pain must be unimaginable, if (usually) brief. Now, he sat hidden in a grove of willows a little ways away from where Hob had washed up and waited for the begging to begin.
Death would not be too busy to return with her mercy.
#
Hob lay curled on the muddy river bank for a long time before he could really look down at the body that had, through some magic, appeared under his neck. It was tender as a fresh cut all over, but it looked like him. Slightly soft with hair over the chest and legs. Bound with the soldier’s muscles he’d had since he was a young man. The only difference Hob could see was that fresh skin had grown where old scars had once been. He hadn’t gotten any scars since his early thirties — not since around the time he’d seen his stranger in the White Horse.
His stranger!
“Oh you beautiful devil!” Hob’s voice was hoarse and it pained him severely to speak. But still, he laughed. “My wonderful, blessed stranger!”
In one hundred years!
He hadn’t just been challenging Hob to live. This wizard or saint or devil must have made it so!
“Oh my stranger, my beautiful lord!” Hob called out. His head tilted back to the heavens. But then he looked around, uncertain if that’s where his mysterious benefactor’s power had come from. He pressed his forehead into the mud, bowing to whatever unseen force had saved him. “If your hand were Satan’s own I’d kiss it!”
As soon as the words left him, he bit his lip — a sharp, torturous pain that made tears spring to his eyes. Hob sat up and looked around swiftly. Even in his glee, a thrill of fear ran through him. He didn’t wish to find out what it was like to be burned alive for consorting with the devil.
“From this day forward,” Hob murmured, his head bowed, “when I pray my Lord, it is to you I pray. Ever after, when I speak of thanks and mercy and forgiveness and glory, it is to you I speak. In your name, lord, though I do not have it. Thank you!”
#
Dream watched, dumbfounded, as Hob Gadling pushed himself up and limped naked down the river bank, grinning like an idiot.
Regretting the time away from his duties, Dream shook his head and turned away. He would be right eventually. This day had only served to vividly remind him him of the acute horror of this world. And Hob still had ninety years left to endure before their next meeting.
Dream was patient.
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