I am, and lots of people I talk to are. Some predict – as Jon Stewart accurately said – “end times” for the nation.

And to be sure, lots of what I see could easily move me to agree with them. Partisan rancor instead of careful administration. A deep political divide over the boundaries and role of government. International conflicts that skirt the edge of war.

Like Stewart, I see “hard times” not end times. Part of the reason is history; I read tons of it, and I keep getting reminded that what we’re going through is nothing special. Kind of like the parent of a teenager, it’s comforting to know that what you’re going through is typical.

Last week, my airplane book was A Magnificent Catastrophe: The Tumultuous Election of 1800, America’s First Presidential Campaign – one that brought this point home to me so clearly – it was a great book about the presidential election of 1800, which was the first truly partisan election. Thomas Jefferson represented the Republicans, who believed in liberty and in diminishing the control of the central government. John Adams represented the Federalists, who believed that only though the leadership of the ‘betters’ could the nation be maintained – much less led to greatness.

The French and English both were capturing or sinking our ships, impressing our sailors, and looting our international trade. The French Revolution made mob rule a real – not theoretical – risk, and an abortive slave uprising in the South challenged the Republican dominance there.

Machine politics in New York City, and Hamilton and Burr, as awful characters as the worst of our own scheming politicians.

They had problems too, back then, and solved them and moved forward. Events tempered ideology – as they always do – and Jefferson presided over the greatest expansion of federal power to date, as he taxed to build a navy and defend our trade.

Go read this terrific book, go to bed, and wake up to feel better about things.
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My friend Kevin Drum examines some of the reasons that mortgage modifications aren’t working worth a damn (as in “the mortgage is too damn high”).

If, in the long run, principal reductions really, truly were the most profitable way to deal with underwater homeowners, I’d expect that not only would banks figure this out pretty quickly, they’d be figuring out ways to create securitized bundles of principal reductions to sell to gullible German investors. That well can’t be completely dry, can it?

So why hasn’t this happened? There are a couple of obvious possibilities here. One is that the complicated nature of mortgage securitization simply makes principal reduction too hard. Once the loans have been securitized, tranched, retranched, and re-retranched, there are so many note holders with a legal stake that it’s all but impossible to get unanimous agreement to do a principal reduction. Another possibility is that banks are afraid of knock-on effects: once they start reducing principal in a few cases, their entire customer base will find out what’s going on and start withholding payment in hopes of getting the same treatment. Reducing principal for 10% of their customers might make sense, but banks might be afraid that there’s no way to hold the line there.

I personally think he’s covered the two main issues. With highly securitized debt, it’s not like there is one person at a bank that owns the loan who will make the decision (…it can literally work like that – early in my career I personally managed about $85 million in commercial ORE and pretty much called the shots on everything up to about $8 million). And yes, if banks suddenly started handing out 15% principal reductions, I might think about hitting the bank up and lowering my mortgage by $70K.

But…at the same time, foreclosing isn’t costless. It’s certainly not costless to the households who are displaced (I’m assuming that most of the people being foreclosed on are decent homebuyers with bad luck or bad underwriting skills, not flippers and pure speculators). It’s not costless to the communities they are pulled out of. And it’s not costless to the lenders; the numbers I see suggest that foreclosure pulls about $30 – $50K out of the price of an average home – and if the mortgage is underwater already, that’s a further haircut. That’s not to count the hit to the lender’s books from depreciation and other holding costs…not all of which count to lower the basis when a sale takes place.

It seems to me like we’re doing the worst possible thing, which is to lean against the collapsing wall and pray that it will somehow miraculously stabilize – that prices will ‘normalize’ – before it all falls over.

That eyes-squeezed-shut hope keeps our banks alive via an accounting fiction – worse, via an accounting lacuna where we simply agree not to look. It keeps homeowners over the edge in a constant state of false hope, and it freezes the spending and hopes of homeowners near the edge.

So what can we do that’s better?

Do we step aside and simply let it collapse and spend our money and energy picking up the pieces??

I toyed with an idea a few months ago – it never gelled, but I felt like I was onto something. It was that homeowners could take a written-down low-interest mortgage, but would lose some of the appreciation and their tax deduction.

Getting rid of – or aggressively clamping down on – the homeowners tax deduction is something we really ought to do. We subsidize overconsumption of housing by the middle and upper-middle class. We simply escalate the prices of all housing stock, and so hurt the working poor who are trying to achieve homeownership – the very people we ought to focusing our assistance on.

But it’s dumb to suggest – as I did – that workout homeowners should lose it – it simply makes the house that much less affordable.

But the idea of having them get rid of (some or all of) their appreciation isn’t dumb. It begins to separate house-as-shelter from house-as-investment, and offer to those who want to keep their house as a home – rather than a piggy bank – some options.

What if we simply agreed that people who are underwater can apply to have their mortgage reset to 100% of the current value of the house, at current low rates, but they accept a participating second from Fannie or Freddie, the terms of which are such that if they sell the house in the next seven or ten years, they get no appreciation, and thereafter they get some measure of the appreciation.

These loans have _some_ value, and can be held or sold – giving a better return to the lenders than simply foreclosing (nominal value of the participating debt plus the new mortgage, plus the ‘foreclosure hit’ that’s avoided). Communities are better off, because the ‘good’ homeowners – the ones who want to stay and keep their roots – can. I’m not jealous of them, because I can sell my house in five years and maybe make a few bucks (or not) which they can’t.

What’s the downside??
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This weekend, the wacky guys at Ranger Up (I’m so going to get pounded for saying that…) are donating 20% of their sales to Soldier’s Angels Project Valour IT.

Here’s the shirt I’m wearing today:

How can you resist?… Or just go support wounded troops directly and donate.

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We’re really close to wrapping up the Soldier’s Angels Valour-IT fundraiser.

Can I just ask a few of you to toss your lunch money over to them today and to skip a meal? Or to be more generous if the mood strikes?

Click here to donate to Valout-IT Team Army.

Click here if you want to know more and see a video that will make you cry like a little emo girl.

This weekend,the folks at Ranger UP – the home of the ‘derka derka derka’ t-shirt – will be donating 20% of their sales to Valout-IT. So get a cool t-shirt and help the cause.

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However you choose to vote, just go do it. Think of it as a ritual – a form of Communion for a democratic republic.

And as long as you’re reading this and thinking about your connection to our Republic, click over to Solder’s Angels and drop a Starbucks-equivalent or better on Project Valour-IT. The soldiers who bear the wounds received in our uniform deserve it.
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From the WSJ:

“A lot of rethinking is needed” after Democrats take their drubbing, Mr. Baird says, especially since he anticipates “a huge number of retirements” from Democrats unwilling to serve in the minority. He proposes that the House elect an independent speaker who would help drain partisanship from the body. Britain’s House of Commons uses such a model.

Democrats, he says, will also have to recognize why they lost touch with voters. “Back in September, we had pollsters and strategists from my party tell members that the mass of people didn’t care about the deficit. The mind-boggling lack of reality coming from some of the people who give us so-called advice is stunning.”

You know how the lax paperwork in securitized mortgages was just going to get cleaned up and then we’d go back to foreclosing as usual?

Maybe not (from the WSJ).

Ohio’s attorney general threw a wrench into the banking industry’s push to quickly restart foreclosures by fixing faulty paperwork, and pressed them to modify mortgage loans.

In two letters released Friday, Attorney General Richard Cordray criticized a number of banks and loan-servicing companies, including Wells Fargo & Co.; Ally Financial Inc.’s GMAC Mortgage; Bank of America Corp.; and J.P. Morgan Chase & Co. Mr. Cordray said the banks are trying to paper over fraud committed in foreclosures with temporary fixes that don’t address underlying problems in the banks’ practices.

“It is not acceptable for a party who believes they submitted false court documents to merely replace those documents. Wells Fargo and any other banks are not simply allowed a ‘do-over,'” he wrote in the letter to Wells. The other letter was sent to Ohio judges, who were asked to notify Mr. Cordray when banks file substitute affidavits.

He demanded that the banks vacate any court order or motion that was based on an improper paperwork. In an interview Friday, Mr. Cordray said the banks would “be well-served to work out a settlement with the borrowers to modify the loans and work out payments.”

It’s going to get interesting. The reality is that politics deeply impacts out interpretation of the law. Right now – in large part because the Administration has tipped so far in favor of the banks and large-scale finance community, I think we’re seeing the beginning of a wave in which law will be interpreted – by people like Cordray – in ways that leads to interesting remedies for homeowners.
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Via the indispensable Leah Farrall, from Der Speigel:

“I have information that I consider to be reliable, according to which al-Qaida in Waziristan is training how to carry out multiple parallel hostage takings in order to enforce the release of a prisoner,” Benotman says.

Benotman believes that the alleged plans for attacks on European targets that authorities have been warning about in recent weeks are real. He says the plan consists of storming buildings in Germany, France and Britain at the same time and holding the people inside hostage with the aim of forcing the release of Khalid Sheikh Mohammed, the mastermind behind 9/11 who is now sitting in jail in the United States awaiting trial for the attacks.

Wouldn’t that be a NATO meeting to listen in on?…I’m not sure that the alliance could service more than a few hours of televised hostage-killing.
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…and calls for Assange to be assassinated.

One nice thing about being an amateur commentator is that I can simply go dark when I think I’ve got nothing to say. Professionals have to step to the plate, and occasionally spectacular misfires result.

Today is Goldberg’s turn.

So again, I ask: Why wasn’t Assange garroted in his hotel room years ago?

It’s a serious question.

He then goes on to make the Flashman case (institutional incompetence, not hypercompetence, is the rule) and then to explain that the fallout from killing such a public figure would be too severe to manage.

He concludes:

That’s fine. And it’s the law. I don’t expect the U.S. government to kill Assange, but I do expect them to try to stop him. As of now, the plan seems to be to do nothing at all.

Now there’s a much better post buried in there, which is a variant of the “if we’re living in such a fascist state why aren’t you in a gulag?” argument I make to people like Glenn Greenwald and my more hysterical friends.

But the plain reading of Jonah’s words is that he’d be quite happy if Assange showed up facedown in his bathtub one morning.

And as frustrated as I am with Assange’s bullshit, and as deeply as I’d like to see him in handcuffs in front of a judge, that’s kind of – scratch that – that’s completely outrageous.

Here’s hoping Jonah is smart enough and gets wise enough counsel to follow this right up with a “My bad, I was on deadline and just had a small brain melt.”

If not…well, if not I’m kinda worried.
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It’s that time of year again, and Soldiers’ Angels is fundraising for Project Valour IT, and I’ll be helping – again. The goal is to raise $15,000 dollars (team Army’s goal) and to – SHOCKINGLY! – beat the teams from the other services.

And I’m going to ask every other day for money from you folks, like I always do.

But here’s a small story that might make it feel a little more relevant to each of us. This afternoon, I’m headed up to Pasadena and the home of one of the guys working on one of the projects I’m heading up. He just moved into his new house, and wile doing some homeowner fiddling, managed to shove his right arm through a window, cutting two tendons, an artery, and a nerve.

He had surgery Monday, and won’t have use of the arm for a while. Because of Valor-IT, I suggested that he get Dragon Naturally Speaking and a good headset; he did and he spent yesterday working on documents for a contract we’re trying to close on Monday.

He was wildly enthusiastic about using it, and so relieved that he could function with his arm in bandages and a sling.

This is happening in the comfort of his own home, supported by his wife, and secure that he’ll heal and all will be OK.

Now transport him to Walter Reed; he’s just been flown ten thousand miles (no frequent flyer points!), he’s alone – isolated form his buddies, and probably from his family – and suddenly he can communicate, because someone gave him the use of a laptop that he could run while his hands and arms heal.

I’ve watched Chuck Z tear up as he explains what it meant to him to be able to connect and communicate without a nurse dialing for him and holding the phone to his ear.

So skip a few lunches, drink office coffee instead of Starbucks, and toss a few bucks into Team Army’s Valour IT account. It’s all for a massively good cause.

And if you know someone in Congress, get them to think about appropriating a few bucks to make this whole exercise unnecessary.