We've grown accustomed to the insane

Gifthub points to a tale of infelicitous economics - French, of course - told by the Times:

“The United States is getting accustomed to a completely crazy level of inequality,” Mr. Piketty said, with a degree of wonder.

One might wonder (the Times, vastly culpable on this score, does not), how did this come about?


One thing to understand is that in the US, wealth long ago learned to be self-concealing. Instead of flaunting in the mode of nouveaux riches, the old money followed the Cosimo de Medici/Superman model: Appear normal and be the power.


This can easily be parsed via real estate patterns. The wealthy find islands, like Longboat Key, Casey Key, or Boca Grande in Florida, which are a bit off the beaten path. They are zoned to be almost entirely private - the one "public" beach on Longboat is a strip of lovely sand with three parking spaces. They offer no Wal-Marts, no reason, really, for the hoi to show up. If you kayak around in Florida, the money - hidden behind walls or hedge from the street -- stares at you on the water from palatial terraces, balconies, lawns, tennis courts, and often, a princely yacht.

In near "completely crazy" conditions, philanthropy is tasked with a not entirely consonant set of objectives: it has to pre-emptively fend off the usual ressentiment of the less fortunate; in a sense, it's a form of protection policy, buying the goodwill of the many via the machinations of experts; it might apply a bit of salve to the soul of the Giver, who is disproportionately a Taker. In the case of a Madoff, it's a fungible triple bottom line accounting scheme with heavenly overtones, inaudible to human ears. In the case of the Koch Bros., it's an entree to social cachet, to establishing a strategic position amid a network of potentially like-minded Takers. Philanthropy so guided can do small good, but is powerless to alter the power structure that makes itself possible. Its use value, in fact, lies in reinforcing that system.

How much longer will USians indulge the polite fiction that the wealthy -- who seize the best assets of nature, of art, of time -- make it all good by sending accountants, lawyers and pony boys to tend the altars of philanthropy. A nettled Business Week will piss about salient moments of poor monarchic judgment. Face the music, USians, and it's not Lawrence Welk, or The Band, or Ol' Blue Eyes: Like the Franco-appointed King of Spain, the rich are always gleefully trumping Big Game somewhere -- rarely they're caught in the act.

Trump boys

Lessig clarifies his concerns

This is no time to play nice.

The rules of Capitalism were broken before they were made

"If our government were playing by the rules--which require shutting down banks with inadequate capital--many, if not most, banks would go out of business." Stiglitz

American Home on the Free Range Horse Nugget Manufacturing Pulsar

This year, as borrowers with adjustable-rate mortgages saw their monthly payments rise, more and more of them had trouble coping with the bills.

OK.

The first group affected were borrowers with low credit scores who received subprime loans from companies such as Countrywide Financial.

OhhhhhKeedokee.

Buuuuuuuuut soon, even borrowers with higher credit scores -- American Home's Alt-A borrowers -- started showing signs of strain. *

Ah, yes, the Alt-A's. What are Alt-A's?

Alt-A loans are issued to people with high credit scores, but the loans are considered riskier than prime loans because they require less documentation of income.

doh

One might think a lender would wish to document income rather than just go on the word of the borrower and his/her credit rating agency. Yet apparently it's entirely otherwise: Because some people have high credit scores, they submit less documentation.

...or is it,

Some people have high credit scores because they've lied to credit rating agencies (submitting less, or false, documentation), therefore American Homers assume more risk, and demand less documentation?

...or,

Some people have high credit scores because credit raters are under pressure to rate people upwards regardless, therefore we need no steenkin documentation?

...or,

We lenders will happily believe whatever tumid turds borrowers give us because Alt-A loans will cost them more than Primes, so more money for us?

The gap between the bureaucratic measuring process of credit rating (tracking one's past record of timely debt payments) and the promise of power to maintain that rating (credible guarantee of future income) is the barn door that allows enthusiastic USian Bullshit free range. Borrower, credit-rater, lender are just different parts of the same Intestinal organ. As conditions deteriorate, the energy to squeeze out ever more baroque arabesques of steaming piles has no choice but to rachet:

American Home's business model worked well when the housing market was booming. But when falling home prices led to record-high defaults and delinquencies on Alt-A loans, a company like American Home would feel pressure to continue increasing its loan volumes to maintain its standing with creditors, analysts said...

Kind of like Iraq -- the bigger the disaster, the more resources you need to fund the full faith and credit of your credibility.

"The market conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that we have no realistic alternative," said American Home Mortgage's chief executive Michael Strauss.

"The company employee base will be reduced from over 7,000 to approximately 750."

The market volunteered its own credit rating:

*Newsday