A sick link

Posted by Marc Hodak on December 30, 2008 under Invisible trade-offs, Scandal | Be the First to Comment

A Reuters reporter created a story that began like this:

Cynthia Goldrick’s daughter is in and out of the hospital for brain surgery, her mother has Stage 4 lung cancer and her father has moved into a home for the elderly.

So when the Goldrick family’s adjustable rate mortgage reset while husband Patrick was off work for a job-related injury, it eliminated the thin margin between their income and the mortgage payment and put them on the road to foreclosure.

While these circumstances may seem extreme — a perfect storm of bad luck — the basic economics of a hike in mortgage rates and a bank’s inability or unwillingness to modify terms have been shared by many Americans over the past year.

Let me see if I got this story right.  A family runs into horrible luck with their health.  The adjustable rate on their mortgage adjusts.  Lots of people saw their adjustable mortgages adjust up.  I think what this story is aiming to do is link the hike in the family’s mortgage to their foreclosure, and claim that this is symptomatic of a nationwide problem with mortgages.  But this is a strange tale.

First of all, this family is faced with losing their home because of a string of factors, mostly health related, with the mortgage adjustment being just one of them.  But a story has to have a villain, and they don’t want to blame God.  Second, very few people are defaulting because they are suffering anything like bad luck visited on this family.  It trivializes their plight to equate this family to the deadbeats who got mortgages they couldn’t afford, often under false pretenses, and the stupid lenders who indulged them.

Likewise, it doesn’t make sense to demonize the banks that gave this family money.  Either the family deserved the loan at the time (in 2005), or they didn’t.  Either way, the bank gave them the money.  Now that this family is unable to pay back the loan, yeah the family risks having to downgrade to a cheaper home, but the bank is also faced with a disappointment that threatens its well-being.  It’s hard for me to see how the banks are the bad guys in this story–which is clearly how they are portrayed–for the sin of trying to minimize their losses.

The end of this story includes a note that investors, finally seeing light at the end of the tunnel, are starting to come back into the mortgage market:

But that won’t help the Goldricks, who like many other families are in danger of losing their house and not likely to benefit from the $700 billion that Congress has allocated to Wall Street for bailing out financial institutions.

“I am absolutely bitter,” said Patrick Goldrick, who sees the scandal surrounding investment advisor Bernard Madoff as further evidence of Wall Street wrongdoing. “I am bitter toward Congress and bitter toward the big banks and the creepy billionaires who get away with stealing pensions.”

Bitter toward the big banks? Here is a family that had four major things go horribly wrong (plus the work-related injury, which was presumably temporary and covered by insurance).  Of those four things, the only one that they consciously signed up for was the adjustable mortgage.  They presumably didn’t want a fixed-rate loan–they wanted a step up from a cheaper rate to a more expensive one.  The story doesn’t suggest that their choice about this was uninformed.

In fact, it’s possible that this family did, in fact, take on a loan they couldn’t afford long-term in order to help their sick daughter in the short term.  I wouldn’t blame them for such a decision.  I would probably make the same choice if it were one of my kids who desperately needed help.  But I don’t think I would be bitter at the investors or the banks that gave me the money.  The fact that Mr. Goldrick was indicates that he buys into the press’s distortion that the investors or their agents are the bad guys in this story.

I often warn my students that the job of the press is not to provide information–it’s to create stories.  Stories sell papers.  Facts are simply the building blocks of stories.  Some facts are helpful to a particular story, some are not, and much of what makes a story good are the facts that are selected versus not.  In this story, the helpful facts are the ones that create sympathy for a family that is hurting, enabling their situation to be crafted into a twisted version of an archetypal morality tale of good versus evil, David vs. Goliath, etc.  The unhelpful facts are the ones that create ambiguities among the characters, each with their peculiar interests and incentives, exercising choices that are difficult to characterize along an ethical scale.  Unhelpful facts create that noisy sense of life that you and I experience, without the forced overlay of comedy, tragedy, or drama.