Zombie Homes and conservative Frankenstein
Rick Esenberg, according to his bio:
is president and general counsel of the Wisconsin Institute for Law & Liberty and an adjunct professor of law at Marquette University Law School.
Esenberg also writes the blog Shark and Shepherd, published today in the Milwaukee Journal Sentinel as part of their Purple Wisconsin Project, “a collection of community bloggers with views from across the political spectrum.” His post is titled “Where do Zombies come from?” and is a response to a recent article from the Journal Sentinel: “Hundreds of zombie homes plague Milwaukee neighborhoods” by Don Walker.
Walker’s article was an example of what should by now be common knowledge to any reader of this blog. Zombie foreclosures have become a common expression for a variety of zombie real estate and zombie debt. It’s about properties in economic limbo, often abandoned, and many recent cases were caused by the real estate bubble and ensuing crisis of 2007/8.
Esenberg addresses Walker’s article by rightly noting that the term “zombie” is not particularly helpful here:
“zombie properties” – a name that seems to designed to obscure rather than illuminate. An entire front page article in this week in the Journal Sentinel yielded almost no information.
Agreed, “zombie” rarely illuminate but as to whether Walker’s article provided information, well, that depends how you define information. It was certainly nothing new, we’ve been discussing this issue for a while now and the New York Attorney General and Senator have been implicated. But the spread of this meme is itself information and so the spread to Wisconsin is perhaps notable.
Esenberg would solve the ambiguity of “zombie properties” by reframing the problem, but in so doing he oversimplifies:
Banks lend money to people to buy houses and they do not repay the loan. The houses go into foreclosure but the process takes forever and in the meantime the properties are left to deteriorate and this causes problems in the neighborhood.
That’s only part of the problem as he’s ignoring the reason many people didn’t repay their loan was because the banks caused the world economy to collapse. But ok let’s go along with the professor for a minute and let him decompose his partial problem into a false dichotomy of “two contending explanations” of how this happened:
The first is that the whole lending process became too complicated. A bunch of hubristic whiz kids thought they could eliminate risk through algorithms rather than traditional tools like underwriting and requiring down payments.
For these inner city properties, where the homeowners have the least to lose by walking away and the economics of rehabilitation and resale are the toughest, this leads to homes where not only the owner but the very project of foreclosure, rehabilitation and resale is underwater.
And not just inner cities but many new development housing and construction projects all around the country in booming new communities of the year 2005/6. But Esenberg claims this is only a “second order explanation”,
The problem is not that these properties refuse to die but that there are truly and completely dead, yet maintained on life support. They are victims of the fiction that they still belong to the people that bought them. Legally, they do. Economically, they don’t and may never have.
This was not home ownership in the real sense; it was speculation for those who could least afford it.
And there that pesky “real” again. Recall recent post about Real Zombie Plans, False Palin America.
What is “real” home ownership? Are those with home secured mortgages not real homeowners?
Although you might expect the bank to move to cut its losses, the cumbersome nature of the foreclosure process – full of procedural requirements to protect the consumer – raise the transactional costs of recovering the property.
Oh that pesky legal process, cumbersomely protecting consumers from precisely the kind of unscrupulous behavior that created this economic disaster. And Esenberg has more scorn for government:
Part of the problem is the government encouraged this type of lending.
To be sure, unscrupulous originators took advantage but there had to be something – a willingness to make subprime loans with insufficient collateral – for them to take advantage of in the first place.
So Professor Esenberg blames the government for trying to get banks to help poor people because that allowed the banks to take advantage of those poor people, and so he concludes that we should demand more, from those poor people. Esenberg concludes:
There needs to be another model – one that requires homeowners to have more of a stake in a neighborhood. That will require demanding more. But before you get there, someone has to reacquire the properties. It seems like the city and banks are playing a game of chicken. I think I know who’ll win that.
I really hope it’s the cities or this whole system what sucks chicken.
Esenberg also makes reference to Frankenstein:
These were policies that left-wing community organizers organizations and liberal politicians supported. Like Mary Shelley’s Frankenstein was a product of scientific hubris gone wrong, the zombie properties are of their own making. “Organizing” does not make what won’t work viable.
First, Frankenstein is not a zombie but also this is another misreading of Frankenstein. The “scientific hubris” didn’t go wrong, the moral humanity did. Frankenstein is the story of science succeeding and of the moral community failing to accept difference. Victor Frankenstein is victorious in his quest to engineer life. He is able to organize dead matter into a living creature. But his failure is that he cannot accept his own creation. He is ashamed, horrified, he abandons it, provides it no love.
Victor’s monster is hideous, only an old blind man will briefly help him. The monster is alone, persecuted and determines to revenge against his creator; who would bring him into a world that would not love him. The monster wants love. Victor refuses love and also refuses to create a second monster as mate for fear what two might do. Victor refuses to believe that the monster and mate could live a happy peaceful life and so would instead sentence the monster to a life alone. And so the monster kills everything that Victor loves.
Making the banks responsible for neighborhood decline is likely to keep the banks out of the neighborhood from now on. Once bitten, twice shy. Selling homes to people who still can’t afford them and who will still be required to put little or no money down will work no better this time than it did before.
This is wrong. Banks are only shy when they can’t perceive the profit. Banks are moths to money. With so many accounts bug-zapped by the crisis we might be tempted to turn off the lights, but instead, turn up the lights, sell homes to every person who would want to build community and together the community will be profitable. The zap came from bad banking, not bad community development.
The properties are underwater because the whole system failed, not because of scientific hubris but moral ignorance. If the community organizers built a Frankenstein monster by pushing the banks to speculation in underserved communities, then the banks must be held accountable to rebuild those communities with the homeowners. Let the full encumbrance of the government foreclosure law hold the banks to their (at least sometimes) fraudulent practices. If they can’t unravel the wizardry of their whiz kids then windfall to the buyer!
Instead, the banks should settle these deals or shortsell to the homeowner with significant reduction in interest rate and principal. Even under George Bush, we bailed out banks. We should bail out the homeowners. Instead many have already drowned but we could still now create incentives to help those that have managed to hold on. If owners want back into their homes, they should be able to hit the reset button and take advantage of low-interest money that has been available to banks but few ‘real’ people after the crisis.
Also, as I’ve written before: Mary Shelley’s Frankenstein is basically a love story. Eve Sedgwick referred to “the Age of Frankenstein” in “Epistemology of the Closet“ as a
wildly dichotomous play around solipsism and intersubjectivity of a male paranoid plot one that always ends in the tableau of two men chasing one another across a landscape evacuated of alternative life or interest, toward a climax that tends to condense the amorous with the murderous…
Was it a debtor-creditor relation? Was it good faith dealings or outright fraud? As in Frankenstein, the courts are a poor place to expect truth. The monster is never held accountable, the ship captain must turn back to avoid a mutiny. Victor dies, the monster mourns and goes off to set himself on fire.