Origins of the US sub-prime crisis

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Louis Hyman, a Harvard historian, writing in the New York Times…

WHILE critics of today’s mortgage crisis call for government intervention to suppress subprime lending, few are aware that government intervention created subprime mortgages in the first place.

The National Housing Act of 1968, part of President Lyndon Johnson’s Great Society, provided government-subsidized loans to expand home ownership for poor Americans. Liberal policymakers hoped that these loans, called Section 235 loans, would enable poor Americans — urban blacks in particular — to buy their own homes.

Under the program, a poor family could obtain a mortgage from a lender for as little as $200 down and pay only a small portion of the interest. If the borrower defaulted, the government paid the balance of the loan. If the borrower made payments on time, the government covered all of the loan’s interest above 1 percent. Homebuyers could borrow up to $24,000, as long as Federal Housing Administration inspectors declared the property to be in sound condition.

By 1971, Congressional and press investigations found the program riddled with fraud. Section 235 accelerated existing white flight by providing poor African-Americans with money to buy out their anxious white neighbors, who in turn accepted below-market prices for their houses. Real estate agents frightened white homeowners with visions of all-black neighborhoods financed by government money, and then pocketed the proceeds from the resulting high home turnover.

Existing homeowners lost their equity, but a canny alliance of brokers, lenders and federal housing inspectors inserted themselves as middlemen between the buyers and the sellers to reap profits. White speculators, often real estate agents themselves, bought houses cheaply from fleeing white homeowners, did superficial renovations and then sold the houses at steep prices to black first-time homeowners.

As the properties changed hands, the speculators profited and the government paid the tab…

Survival Strategies for Emerging Artists — and Megastars

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David Byrne has a terrific piece in Wired about the options for the music business. Includes fascinating interviews with Brian Eno, inter alia….

What is called the music business today, however, is not the business of producing music. At some point it became the business of selling CDs in plastic cases, and that business will soon be over. But that’s not bad news for music, and it’s certainly not bad news for musicians. Indeed, with all the ways to reach an audience, there have never been more opportunities for artists…

Controlling the default

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Good piece by Christopher Caldwell in the New York Times, meditating on the implications of Facebook’s Beacon fiasco.

Facebook designed Beacon so that members would be able to “opt out” by clicking in a pop-up window. But these windows were hard to see and disappeared very fast. If you weren’t quick on the draw, your purchases were broadcast to the world, or at least to your network. Since people, too, sometimes want to be free, privacy advocates urged that Beacon be made an “opt in” program, which members would have to explicitly consent to join. In early December, Facebook agreed to this approach.

The Beacon fiasco gives a good outline of what future conflicts over the Internet will look like. Whether a system is opt-in or opt-out has an enormous influence on how people use it. He who controls the “default option” — the way a program runs if you don’t modify it — writes the rules. Online, it can be tempting to dodge the need to get assent for things that used to require it. This temptation is particularly strong in matters of privacy. For instance, the “default option” of the pre-Internet age was that it was wrong to read others’ mail. But Google now skims the letters of its Gmail subscribers, in hopes of better targeting them with ads, and the N.S.A. looks for terrorists not only in the traditional manner — getting warrants for individual wiretaps — but also by mining large telecommunications databases.

So it is with Facebook’s Beacon. We used to live in a world where if someone secretly followed you from store to store, recording your purchases, it would be considered impolite and even weird. Today, such an option can be redefined as “default” behavior. The question is: Why would it be? The price in reputation for overturning this part of the social contract is bound to be prohibitively high…

‘Harvest’ time in Manchester

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The Guardian had an extraordinary report the other day giving the background to the Manchester United Christmas party at which a girl alleges she was raped.

The news travelled fast between the racks of £1,000 Prada dresses and podiums loaded with Louis Vuitton handbags in the Manchester branch of Harvey Nichols. Word had come down from the players at Manchester United that it was time for a “harvest”.

The best looking shop assistants were put on alert to expect an invite to one of the biggest football parties of the year. The same thing happened at Selfridges next door. They may never have met them, but for one night these young women stood a chance of swapping their lives as shop assistants to be the guests of champions, some of whom earn 400 times more than they do.

One by one, the invites for the event came; sometimes directly from a player shopping after training, or from a friend deputised to handpick the most attractive young women to “decorate” their party.

Such “harvests” are a part of a social scene involving footballers and would-be Wags (wives and girlfriends of footballers) which was thrust into a harsh spotlight this week after Jonny Evans, a United player, was accused of the rape of a 26-year-old at the club’s Christmas party.

The article goes on to detail what apparently goes on all the time in Manchester.

One boutique assistant told how two Premiership players tried to entice her back to their hotel to watch pornography. One senior player embarrassed her by parading in her shop wearing only his underpants. Another said she had been pestered by a footballer who refused to take no for an answer.

Several shop assistants from the make-up and handbags section of Selfridges were invited to the United party on Monday night at the Great John Street boutique hotel in the city centre. It was also attended by models, including Louise Cliffe, the one-time Miss Manchester, and others who came from Leeds, Liverpool and London. Events that took place have been unravelled in all their uncomfortable detail in the tabloid press. Yesterday’s newspapers brought allegations that a drunk girl took part in an orgy with several men.

The 15-hour party was closed to the players’ wives and girlfriends and was reportedly described as “very, very sleazy”. Another said girls were being passed around “like pieces of meat”.

The next day, in the same paper, columnist Marina Hyde returned to the story:

Yesterday further revelations about the party surfaced. One “very drunk” woman was “roasted” by five or six men, according to another guest, who told a newspaper that “I asked her if she was OK and she said, ‘Yeah, why wouldn’t I be? They said I was a great shag.'”

Now the interesting thing about this is the way such revolting behaviour is tolerated by the British media — and the society it supposedly serves. If the group of males that indulged in this kind of thing had come from, say, the Parachute Regiment, there would be all hell to pay. Or if it became known that, say, officers in Saddam’s army had sent out scouts to pick up women for a party in which some of them would be effectively gang-raped, then our newspapers would have been frothing with moral indignation about the moral corruption which accompanies absolute power.

But when the athletic cretins of Manchester United next trot out onto the Old Trafford pitch they will continue to receive their normal dose of public adulation. I’m reminded of the old exchange:

Pity the land that has no heroes.

Pity the land that has need of heroes.

And pity, especially, the land that needs heroes like the thugs who currently adorn the so-called ‘premiership’.

Footnote: The Great John Street hotel, which housed the Man U orgy, describes itself thus:

Only a stones throw from Manchester’s most exclusive shopping areas, restaurants and theatres, this original Victorian school house has been transformed into a chic townhouse hotel with unique, individually designed bedrooms and suites alongside stylish lounges and Oyster Bar. The Old School House also boasts stunning entertainment rooms and terraces available for exclusive use for your own tailor made event.

An ‘Opus Grand’ suite costs £395 a night. WiFi available for £10 per day. Apostrophes and hyphens are extra.

What’s really killing newspapers

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Interesting interview with Craig Newmark, of ‘Craigslist’ fame. Includes the following exchange:

Q. There have been ongoing concerns and criticisms from the newspaper industry that free online ad sites like Craigslist are eating them alive and drastically reducing their revenues. What’s your reaction?

A. No one in the newspaper industry seriously says that. I’ve spoken to a lot of publishers, editors and industry analysts. They say that our site does have a small but measurable effect on classified revenues. But they say the bigger problems are those niche-classified sites which go after the more profitable classified categories, specifically cars and jobs. There’s Autotrader.com and Monster.com. Newspapers have much bigger problems. Newspapers are going after 10% to 30% profit margins for their businesses and that hurts them more than anything. A lot of things are happening on the Internet that never happened before because the Internet is a vehicle for everyone. The mass media is no longer only for the powerful, and that’s a huge change for the entire newspaper and news industry.

He’s right about that. The old newspaper value chain linked (i) an expensive and unprofitable activity (journalism) which was necessary to attract readers with (ii) profitable classified and display advertising. The Web dissolved the value chain by siphoning off the classified advertising — for the simple reason that it did it better. Why would you prefer to wade through hundreds of classified ads in the ‘Cars for sale’ columns when you could search directly for what you wanted on an online advertising site? The other problem is that newspaper owners had unrealistic expectations of profit: in the old days they were accustomed to margins of anywhere between ten and 30 per cent, simply because there was no alternative medium to what they owned. Like most established businesses (e.g. the record industry) they thought that their cosy business model had a God-given right to exist — which is they still whinge about the Net.

The political invisibility of IT

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Ed Felten has been musing about John McCain’s recent remark that the minor issues he might delegate to a vice-president include “information technology, which is the future of this nation’s economy.”

“If information technology really is so important”, asks Ed, “then why doesn’t it register as a larger blip on the national political radar?”

One reason, he thinks, is that

many of the most important tech policy questions turn on factual, rather than normative, grounds. There is surprisingly wide and surprisingly persistent reluctance to acknowledge, for example, how insecure voting machines actually are, but few would argue with the claim that extremely insecure voting machines ought not to be used in elections.

On net neutrality, to take another case, those who favor intervention tend to think that a bad outcome (with network balkanization and a drag on innovators) will occur under a laissez-faire regime. Those who oppose intervention see a different but similarly negative set of consequences occurring if regulators do intervene. The debate at its most basic level isn’t about the goodness or badness of various possible outcomes, but is instead about the relative probabilities that those outcomes will happen. And assessing those probabilities is, at least arguably, a task best entrusted to experts rather than to the citizenry at large.

Full aperture

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I’ve decided that Quentin was right about Aperture as a tool for managing large numbers of images. What finally tipped me over the edge was finding that it was the best way of handling RAW images. It’s also very good for dealing with the archiving of large filesets. And the Loupe tool (shown above) provides a useful way of checking the detail of an image without having to zoom it.