Elitist Bank Economists Blame Housing Bubble on Subprime Borrower's Poor Math Skills

Bankers are trying to blame borrowers for the deflation of the housing bubble. The geniuses who came up with the toxic Option ARM are lecturing the rest of us on the need for math proficiency.

Irvine Home Address … 4 MONTGOMERY Irvine, CA 92604

Resale Home Price …… $280,000


I got six.

That's all there is.

Six time one is six, one times six

He got six.

I put mine with his and we got twelve

Six time two is twelve, two times six

I got six, you got six,

She got six.

We got eighteen altogether.

If we can get 'em all together.

Six time three is eighteen, three times six

Multiplication Rock — I Got Six

Did you like word problems in math class? Many students didn't. If you didn't do well in math class, the children who did math well may have mocked you for being inferior. Those kids grew up to be bankers, and now they are still mocking you.

The fear of all sums

The role of mathematics in America’s housing bust

May 13th 2010 | From The Economist print edition

IN HINDSIGHT one of the worst things about America’s subprime housing bust is how predictable it was. Subprime borrowers were by definition people of limited means with poor credit histories. Yet economists who have looked at the pattern of payments on subprime mortgages point out that even when house prices topped out and then began to fall, not all subprime borrowers defaulted. Only a minority of borrowers abruptly ceased to make payments, as someone choosing to default would.

I think the ones who defaulted early are the ones who had superior math skills. The math does not favor staying in an underwater home when rents are much cheaper than payments.

More typically, payments went from being regular to being erratic: borrowers fell behind, then became current again, only to fall behind once more. Those patterns are indicative of people trying, but struggling, to keep up with their payments.

I am amazed at how many subprime borrowers even tried to keep up. All subprime borrowers were screwed by their lenders with the primary culprit being the 2/28 loan. Subprime borrowers were qualified under a teaser interest rate for two years with an interest-only payment, and once the two years were up, the payment became fully amortized over the remaining 28 years with a market interest rate which was generally 2% or 3% higher than the teaser rate. Basically, there was no way the subprime borrowers were ever going to survive the payment shock.

Subprime borrowers have been maligned and punished far in excess of their wrongdoing. First, since their loans were set to blow up after only two years, they defaulted first. And since the housing bust began with their defaults, lenders followed their pre-bubble loan loss mitigation procedures and foreclosed on them. Subprime borrowers got kicked to the curb. Contrast that to what has happened to the alt-A and prime borrowers whose loans were just as toxic as subprime loans; they have been allowed to squat. More than a third of all delinquent homeowners have been squatting for more than a year.

What's worse is that the entire housing bust has been erroneously blamed on subprime borrowers because their defaults and foreclosures came first. The narrative being spun today is that the alt-A and prime borrowers would have been fine if not for the subprime fiasco. That is nonsense. The only difference between the groups was the timing of their loan resets and the response of the lenders. Subprime loans reset first, and lenders foreclosed. Alt-A and prime loans reset last, and they are being allowed to squat.

A trio of economists set out to find out what differentiated those borrowers who did not keep up with their payments from the rest. Their answer, according to a new working paper from the Federal Reserve Bank of Atlanta, is simple: numeracy.

This is the worst kind of elitist bullshit. What about the math skills of the brilliant bankers who underwrote loans designed to implode? Perhaps their math is better, but their financial literacy is certainly lacking. The Federal Reserve Bank of Atlanta is trying to blame borrowers bad math skills for the failure of banker's. The banks failed because they underwrote stupid loans. It had nothing to do with their borrower's math skills.

Think of the nerve it takes to conceive and undertake this study. Imagine the conversation:

Bank President, "Why did subprime borrowers default in such large numbers."

Research Head, "Because we gave them loans nobody could repay under the terms as written. Subprime was always supposed to be fee-laden bridge financing that made us rich and screwed the borrower."

Bank President, "I can't tell people that. The truth implicates us. Isn't there something we can identify that blames the borrowers?"

Research Head, "I need something tangible that separates subprime borrowers from others besides their FICO scores."

Bank President, "These borrowers were generally poor minorities, right?"

Research Head, "That might get us off the hook, but it would be too racist and inflammatory."

Bank President, "They were all stupid enough to believe we knew what we were doing." [laughs out loud]

Research Head, "Perhaps we could correlate defaults with their lack of education."

Bank President, "That is too general. Can we be more specific?"

Research Head, "Well, they obviously didn't understand the math, or they would have realized how bad we were screwing them." [giggles at the harsh truth]

Bank President, "That's true. Go collect data on their poor math skills. That should exonerate us."

Research Head, "Great idea! We can make them look stupid, make us look smart, and reflect blame for this disaster on our victims. The subprime borrowers will look like the people who caused all this. Brilliant!"

Bank President, "That's why they pay me the big bucks." [laughs at the gullible masses]

The cynic in me wonders if the bankers truly believe that they are blameless and stupid subprime borrowers sunk the ship. I suspect they know the truth and are looking for a scapegoat, but you can never be sure with these guys.

The economists tracked down a large number of subprime borrowers in New England on whom they already had detailed information, including the terms of their mortgages and their repayment histories. These borrowers were then subjected to a series of questions that required simple calculations about percentages and interest rates*.

Even accounting for a host of differences between people—including attitudes to risk, income levels and credit scores—those who fell behind on their mortgages were noticeably less numerate than those who kept up with their payments in the same overall circumstances. The least numerate fell behind about 25% of the time. For those who did best on the test, the number of payments they missed was almost 12%. A fifth of the least numerate group had been in foreclosure, but only 7% of those who were more numerically adept had.

Surprisingly, the least numerate were not making loan choices that differed much from their peers. They were about as likely to have a fixed-rate mortgage as the more numerically able. They did not borrow a larger share of their income. And loans were about the same fraction of the house’s value.

Why would that be surprising? Everyone involved relied on the supposed experts who were selling them snake oil.

Stephan Meier, one of the study’s authors, reckons that the innumerate may be worse at managing their daily finances, leaving them with little room for manoeuvre when things get difficult. Those better at sums might, for instance, have put a bit more aside in more plentiful times. Normally, such differences might not matter much. But in bleaker circumstances, a small pot of savings may be all that stands between homeownership and foreclosure.

I love the leap the author made without any data: better math equals more savings? Bullshit. Nothing in this study measured or correlated savings with default, or savings with math skills. In fact, only in these dubious conclusions is savings mentioned at all. And why is that? Because this study was never intended to find the answer to anything. It is merely a public relations ploy to deflect the blame for the subprime meltdown away from lenders.

This study is offensive. It provides no useful or actionable information. What are we supposed to do, start giving borrowers math tests? It was clearly undertaken to support an agenda and disguise the truth — the opposite of what academic pursuits are supposed to do. Everyone involved should be embarrassed.

Duetsche Bank kicks them to the curb

These borrowers purchased a big loser, but they were smart enough to refinance out $43,100 while there was still a few dollars in the equity piggy bank.

  • The property was purchased on 7/12/2004 for $370,000. The owners used a $296,000 first mortgage, a $74,000 second mortgage, and a $0 down payment.
  • On 2/28/2007 they refinanced with a $413,100 Option ARM with a 1.47% teaser rate.

Foreclosure Record

Recording Date: 07/02/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 03/31/2009

Document Type: Notice of Default

Deutsche Bank National Trust bought the property at auction on 10/6/2009 for $372,182.

Now tell me, where did the kitchen go? The owners probably salvaged $3,000 to $5,000 in used materials and appliances from this kitchen, but it will ultimately cost the bank an extra $20,000 to $50,000 depending on repair costs or loss of real estate value. Since this is a recourse loan, the bank can sue the previous owners for the losses — not that they can collect — but the owner are liable for the loss on the property.

Stripping out the kitchen was theft. It created what the owners know will be an uncollectible debt.

This creates an interesting question: If these people strategically defaulted in the best interest of their families, isn't stealing a few thousand extra by stripping the property also acceptable since they needed the money?

Of course not. Theft is theft. The permanently attached cabinets and counters were part of the real property. Taking personal property like appliances is expected, but dismantling real property is destruction of collateral, and this is not a contractual right of the borrower without paying damages. Just because a defaulting owner has the right to default, it doesn't give them the right to deliberately reduce the value of the real property held as collateral. That contingency is not part of the contract.

Irvine Home Address … 4 MONTGOMERY Irvine, CA 92604

Resale Home Price … $280,000

Home Purchase Price … $370,000

Home Purchase Date …. 6/12/2004

Net Gain (Loss) ………. $(106,800)

Percent Change ………. -24.3%

Annual Appreciation … -4.5%

Cost of Ownership


$280,000 ………. Asking Price

$9,800 ………. 3.5% Down FHA Financing

5.01% …………… Mortgage Interest Rate

$270,200 ………. 30-Year Mortgage

$58,043 ………. Income Requirement

$1,452 ………. Monthly Mortgage Payment

$243 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$23 ………. Homeowners Insurance

$175 ………. Homeowners Association Fees


$1,893 ………. Monthly Cash Outlays

-$137 ………. Tax Savings (% of Interest and Property Tax)

-$324 ………. Equity Hidden in Payment

$19 ………. Lost Income to Down Payment (net of taxes)

$35 ………. Maintenance and Replacement Reserves


$1,486 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$2,800 ………. Furnishing and Move In @1%

$2,800 ………. Closing Costs @1%

$2,702 ………… Interest Points @1% of Loan

$9,800 ………. Down Payment


$18,102 ………. Total Cash Costs

$22,700 ………… Emergency Cash Reserves


$40,802 ………. Total Savings Needed

Property Details for 4 MONTGOMERY Irvine, CA 92604


Beds: 2

Baths: 1 full 1 part baths

Home size: 1,011 sq ft

($277 / sq ft)

Lot Size: n/a

Year Built: 1977

Days on Market: 38

Listing Updated: 40278

MLS Number: P730030

Property Type: Condominium, Townhouse, Residential

Tract: Hp


According to the listing agent, this listing is a bank owned (foreclosed) property.

Spacious two story condo (Townhome Style) in the popular Heritage Park development. No Kitchen in this unit so no financing unless it is a 203K loan. Nice tile flooring, spacious patio, great location. Hurry on this one!

78 thoughts on “Elitist Bank Economists Blame Housing Bubble on Subprime Borrower's Poor Math Skills

  1. Brad

    “If these people strategically defaulted in the best interest of their families, isn’t stealing a few thousand extra by stripping the property also acceptable since they needed the money?”

    Tough question.

    1. AZDavidPhx

      Oh I am sure that was what was going on. It wasn’t “let’s strip the joint and stick it to the bank for kicking us out”

      No sir, it was all “I need some money for the children to have food”. PFFFF.

      These people who do this are sending a message to the bank; making a statement along the line of a hand with one finger extended.

      We have a hundred and one social services including foodstamps and never ending unemployment payments – yet, folks still need to strip every last inch of copper wiring from the house in order to “feed the family“. Sure.

      1. Swiller

        Unacceptable to strip a house of things you did not upgrade and/or install.

        A counter argument would be this:

        Homeowner used a HELOC, or Lord forbid, their own money, to upgrade the house. Income drops, loan resets…etc, for WHATEVER reason, the person is losing the home to the bankster. So, in many people’s eyes the MORAL and ETHICAL thing to do is whimper a bit, and hurry up and move out because your such a scumbag right? WRONG

        The 6 biggest banks now own 60% of this nations GDP, why in the world would you leave ANYTHING so they can get enriched? Remember, the HELOC is getting ZERO, and if you used your own money, well, that’s gone. There is no reason i nthe world that the banksters should make extra profit off the upgrades. Rip those babies out, but be sure and buy the cheapest a$$ chinese made sh1t to replace it with in order to fulfill the LAW.

        Stay according to the law, but STRIP anything decent, replace with garbage. That’s following the LAW. Keep YOUR morals and ethics to YOUR behavior, and I’ll do the same, because believe me, if I enacted my morals and ethics on you, you’d be crying like a rat eating onions.

        1. AZDavidPhx

          Swiller has the right idea. Strip the place, but be sure to replace all the appliances with the biggest piece of sh_t you can find on Craigs List. Broken dishwasher for 10 bucks, 1970’s cabinets for another 15. Paint all of the walls bright pink. At least give yourself some plausible deniability.

          Things like knocking holes in walls or pouring concrete into toilets is just plain ridiculous and obvious vandalism. If you are going to send a message to the bank, just don’t be an idiot about it and don’t go around saying that you did it to feed the children as not all of us are bleeding at the heart sheeple looking for an excuse to cry a river.

          1. Swiller

            Agreed David. I know people get pissed and feel they got screwed, BUT, the bottom line is YOU signed the agreement, even IF it was fraud, it was legal fraud. So don’t be a turd and destroy things just to cause loss. Be smart. Take out those worthwhile things and replace them. Sell them for a profit. Banksters understand profit.
            Play the game according to the rules, abide by the law, and enough people finally understand that the law is unjust, perhaps they will change the law…until then..STRIP AWAY.

    2. brea

      The missing kitchen cabinets and the partially painted room, make me think that they bailed during the renovation. The cabinets were over 30 years old and if there had been any water leaks, they would have been moldy and trashed. My quess is that they threw them out because they did not want to live with them. What is the value of their distruction if the cabinets were a health risk (mold) and had to be removed. Wouldn’t those cabinets have zero or negative value if left in place.

  2. MarkyMark

    To my mind it is the “sub-prime” borrowers who were actually the business savvy ones in this whole mess.

    Remember these people in many cases put no money down. They were given a free option. If the house price went up they got to keep any capital gain. If it went down they could simply walk away. Since they had no skin in the game they have lost nothing. This seems like a good business deal to me.

    In addition to the free option there were other benefits of being a ‘sub-primer’:

    – some may have been able to withdraw home-equity. This enabled a spend-up that they may never again see in their life-time. Although this is recourse debt most of it will never be paid back and most sub-primers will avoid bankruptcy.

    – in some cases they also got to live in a brand new house that they otherwise would not have been able to afford to live in (i.e. afford the rent in respect of).

    – in some cases they got to live in the house “payment-free” for an extended period as the banks took months and months to deal with their case.

    The real losers in this are not the Banks (as they have been bailed out by the taxpayer) but the middle class. A highly numerate middle class.

    Their first mistake was to put real hard-earned money into the house as a deposit. If they purchased during the bubble then the more conservative they thought they were the more of their life savings have been lost.

    If they have been silly enough to take out a home-equity line of credit then they have lost again. This time, unlike subprime, the lender will come for its pound of flesh. Not immediately. But eventually. The middle class have middle class jobs. Not necessarily enough to thrive upon but enough to make persistence on the part of the lender worthwhile.

    The middle class who walk away will also see their FICO score plummet. This will concern them more than it perhaps should.

    Remind me who were the business fools? innumerate sub-prime or the highly numerate banks and middle class?

    1. Geotpf

      The initial payment were also lower in many cases than the cost to rent a similar house at the time. Somebody with bad credit and unstable income could therefore just treat a sub-prime purchase as a cheap rental.

    2. Walter

      In addition many of the sup-prime borrowers had tarnished credit to begin with, erasing the main “cost” of default. I know a few of these people. They seemed to have skated through. Cheap rent for awhile, no rent for awhile, and then move into a rental.

    3. Pricingguru

      When I look each week at the last 10 pages of the Saddleback News that comes out on Friday, with each page having at least 10-12 notices of Trustee’s sales, the names of the ‘owners’ are predominately Hispanic, female. I’ve been doing this for many years. If you don’t look at the data available, you won’t see the whole picture. I know folks that take many trucks filled with construction materials, used mobile homes, etc. to Mexico every week.

  3. flyovercountry

    If one gives a box of live grenades to pre-schoolers, and the predictable explosions happen, who is to blame? The pre-schoolers or the person who gave them the grenades?

    Banks should be assuming that their customers may not understand the consequences of their loan terms, and protect themselves accordingly. They are the ones with the MBAs and math degrees.

    Banks have no problem using customer’s innumeracy to their advantage when it comes to fees and terms, so when it cuts the other way and costs the banks money, they shouldn’t get the free pass.

    1. Planet Reality

      Are the pre-schoolers with grenades the banks or the borrowers? Seems to me the answer to that question is both.

      Why would you blame anyone who doesn’t have to pay for their actions?

      Maybe it makes more sense to blame the responsible people who are willingly paying for the mess? If you willingly jump on the grenade who’s fault is that?

      There was ample opportunity to make money in these bubbles without participating.

      1. AZDavidPhx

        I like how house debtors are now on the same level as pre schoolers. Mature adults who can’t figure out that spending 50% of your income on a mortgage payment is stupid.

        I love this emerging tone that borrowers are as pure as the driven snow – while banks are the evil doers. Oh the poor borrowers lying about their incomes and miniscule down payments and Pollyanna optimism about price appreciation. The poor pooor whittel babiees! None of them were gaming the system, no sir it was all the banks fault for putting them into time bomb loans.

        Just look at all the poor strategic defaulters who can still afford to pay but choose to stop. That must be the bank’s fault too! Come on enough with all the borrowers are helpless children and banks are abusive stepfathers garbage.

        We need to start by telling the government to stop rigging the damn house market with all of it’s ridiculous programs that make houses less affordable. Stop hiding the risks from borrowers, make them save up a large down payment, stop with all the tax gimmicks. The borrowers will be forced to think it through before they commit whereas now the current system serves only to hide risks and discourage thought.

        1. IrvineRenter

          The borrowers were bad too. None of this exonerates them. The banks played a larger role because they are the ones who are supposed to know better. In this mess, we are making distinctions between the lesser of two evils, not the good and the bad.

          1. AZDavidPhx

            The banks definitely had a game plan – I agree. I am just growing tired of the seemingly endless excuses of defaulting house debtors that villify the financial system when things go the other way.

            In reality, both were willing particpants in the risky behavior. So the borrowers with financial Gonorrhea went and slept with CountryWide who gave them Financial Herpes. The borrowers scream bloody murder for getting financial Herpes and the banks scream bloody murder for getting financial Gonorrhea. Great, just great.

            Now the rest of us are stuck paying the bills to treat both of these idiots since nobody used any protection.

          2. IrvineRenter

            Delightfully apt and politically incorrect analogy. It doesn’t matter who screws who in that circumstance… except that we all pay the doctor’s bills.

          3. avobserver

            LOL…. this is about the best description of the whole mess I have ever read.

          4. Swiller

            David you are wrong. Your money is not being used to “help out” your fellow citizens, it’s being used to cover the banks a$$es. Part of this process is allowing those whom gamed the system to be benefited….hardly the case of the government “helping” citizens. In fact, I would go as far as to say the government is hurting the people by getting them to stay in a home that they simply cannot afford.

            A very small percentage of homeowners “gamed” the system. Many were just caught in the “fever” of woning the “american dream”, and how can you blame them? For 50 years that’s all we ever heard….buy a home, invest in your FUTURE. Well, the “future” wasn’t so bright for many of us who simply weren’t in the housing market at the “right” time. It’s not ok to commit fraud and then expect the millions of people who got hoodwinked (I’m talking POLICY here not insane contracts) to foot the bill. Boot the people out of the homes, sell the property. Let banks take the hit, they CONTROLLED the environment.

            The idiots who got hoodwinked (myself included…bye bye 20% down, you really taught me a lesson in fiscal responsibility!). I’m a smart guy, I roll mid 130’s on IQ tests….and I fell for it for a variety of reasons that you wouldn’t really care to hear….like finding a home in the same area for my kids to go to the same school after a divorce…etc. etc.

            I’m sticking it out only because I have rental parity or close to rental parity AFTER my modification, and that is AFTER taxes. I still ponder defaulting just to shove it up Chase’s a$$, but I have another year to ponder, the Mortgage Debt Relief Forgiveness Act goes away after 2012, so I’m watching and waiting.

  4. Geotpf

    What are the legal implications of the following scenerio (fairly unlikely in real life):

    A buyer buys a house with a loan. Then, using their own money (not a HELOC loan or similar-this is the unlikely part), they remodel the kitchen and do not take out any other loans after they do this. The kitchen cabinets, therefore, were not part of the original loan or any other loan (although there were older ones at that time that have now been removed). Can they legally take the cabinets when they move out/default?

    1. cara

      Only if they put the old cabinets back.

      That HELOC on this one may have been to intended to redo the kitchen and it went horribly wrong. Maybe it was all installed so terribly (broken granite, water damaged lower cabinets, unsecurely hung upper cabinets) that the bank has since ripped it out so the new owner can start fresh. Lots of possibilities since the bank took possession in October.

    2. IrvineRenter

      The short answer to your question is no, they cannot take out the cabinets even if they paid for them with their own money.

      The issue you are trying to parse is the distinction between real estate and personal property.

      Fixtures are personal property. These are items that are generally easily removable. For instance, a lamp that you plug in to the wall socket is personal property, but a can light cut into the ceiling would be part of the real estate.

      In the instance of the cabinets, those are permanently installed pieces of real estate. Lenders are very happy when owners improve the real estate with their own money because it adds value to the collateral.

      Prior to the widespread use of HELOCs for personal consumption, lenders would extend these loans because they knew people were improving the value of real estate. These loans were less risky because they were being backed by the collateral which was increased in value by the improvement.

      1. Planet Reality

        Wonderful legal review but too bad, the cabinets are gone and they ain’t paying.

        Don’t worry, when our children are old enough they can get jobs or go to war to pay for these cabinets.

      2. Swiller

        Nope, you’re wrong, you CAN take them out if you replace them with something that is practically worthless…hell you could make your own cabinets with 2 by 4’s and plywood…it’s LEGAL, remember, it’s YOUR home. Just don’t destroy things for vengeance. Remember, take all those fixtures and buy CRAP from Home De POT. Single bulb screw in PLASTIC fixtures work GREAT for ceiling fans/lights, and those sell well to neighbors and friends or even a garage sale.

        If you want to stick it to the banksters, you can, just follow the LAW.

        1. AZDavidPhx

          That’s what is great about the word “upgrade”. It can mean practically anything.

          Maybe I happen to like bright pink walls all throughout my house. Maybe I like circa 1970’s cabinets and kitchen counter tops. Shag carpet? Love it dahling! I just went and improved things according to my old fashioned taste and style. Nothing illegal about that – nope.

          1. lowrydr310

            You don’t even need 1970s cabinets. I like swiller’s idea of 2x4s and plywood. Could you imagine a kitchen equipped with shelves/cabinets of unfinished plywood and rough-cut 2x4s?

          2. AZDavidPhx

            How would the realtor spin that?

            STUNNING mobile countertops in kitchen + CUSTOm drain bucket!

          3. newbie2008

            Stripping, selling, purchasing, and installation would cost money. Better get a HELOC, too bad the money ran out during demolition. :} How much free rent was given on the tax payers dime? How much profit will the bank realize with the bailout?

            One Jr. banksters after $600K HEW in TRidge, had brown walls on very rough plaster. Will take 5 coats of Kilz to stop the bleed through. Look more like what’s flushed down the toilet. $600K HEW, free rent for half year and maybe collecting from house mates. Shouldn’t be mad, but happy with the $600k plus profit and free rent and monthly income.

            I don’t think they can get over $700 for selling used kitchen cabinets. I saw lots of used BBQ on Craig’s list for wish thinking price, but a sucker born every minute.

            You have to look at the loan for the bankster’s vantage point. I make the loan and collect the 1% origination fee, 0.5% yearly service fee plus year end bonus, and later retention bonus. If the loan fails, it will just be passed to the federal govt. If not I, the bankster will cry if you don’t bail me out — it will be the Great Depression II ! Use the media and the DemocRats and RepubicRats to drum up the fear. Who cares about 15% or 20% unemployment, we can still make money as long has the stock market has high volatility and the politicians play musical chairs and hearings to confuse the voters. Make a lending reform law demanding the I the bankster check for income, but the flip side, the federal govt will assume all my liability and none of the profit.

            BUY THIS CONDO before you’re price out of the market. Only $277 per sf $ ^ $ for the handyman’s dream home. Open kitchen furnishing allow room for easy remodeling.

            RE talk: “Lots of open access storage in newly remodeled kitchen. A must see. A must have.”

  5. wheresthebeef

    Yup, like the listing says “better hurry on this one.” Almost 300K for an apartment that has been gutted. Let me know when we get back to reality, this is effing insane!

  6. Freetrader2

    I have to say that I disagree with IR here. To argue, as IR does, that the bankers ‘screwed’ borrowers by giving them products such as 2/28 mortgages and Option ARMs doesn’t make any sense. One could perhaps argue that the bankers ‘screwed’ borrowers with these products if we were to assume that the borrowers were all mentally impaired and should not have been allowed to borrow the money even if the banks were willing to lend it to them. Of course, that is where bank regulation is going, but I digress. If anyone screwed anyone, it was the defaulting borrowers and the bankers, who together made a big bet on endlessly rising house prices and then flipped the problem onto the taxpayers when things went South. In the hierarchy of sympathy, mine goes first to the taxpayers, then the borrowers who actually paid their mortgages, with the bankers and the defaulters far behind, and in that order.

    1. Swiller

      And I disagree with you. The banksters planned this whole fraud show and KNEW the price of real estate would bubble which would cause millions of people to not be able to afford a home….the planned unaffordable housing fraud debacle.
      Banksters deserve to collapse, they controlled the whole thing because surprise, beloved REAGAN started the systematic dismantling of regulation.

      Vote republican because they will SAVE you and they love Jesus! Do it for the kids!

        1. Freetrader

          I think, like with most conspiricy theories, you are giving way too much credit to the supposed “masterminds”, the banks. I suppose it is human nature to imagine that some genius controlled everything, but no.

          The bankers were motivated by short term self interst to ‘ride the wave’; to argue that they deliberately did a ‘pump and dump’ defies logic – unless you want to argue that they purposely made things so bad that a government bailout was necessary to save the economy, instead of them all being laid off as would be the normal result.

          No, criminally stupid, perhaps. But criminal masterminds, nope.

          1. newbie2008

            That sounds like you are assuming good intentions which is a good base to start on. Just read some of the emails to pump up the stock or equility to the general public while they are unloading the PIG or POS from their portofilo’s.

            The federal govt policies were in line to pump up WS and the bubble. Polices are set by WS insiders while on temporary leave from WS for a stint in the the US treasury or federal reserve.

      1. AZDavidPhx

        Swiller – the banks just went along for the ride to profit off of the stupidity that was flowing out of DC and main street America. It was all about pushing homeownership and enslaving the people into being obedient workers. The fault lies squarely at the Government and Federal Reserve. It’s fun to make fun of New Century and Countrywide but these folks were just doing exactly what was wanted of them.

        1. Swiller

          You know, as much as I spout like I know what happened…I don’t, I’m just making my best educated guess based upon my own life’s personal experience of growing up in this country and being in the prime of my earning years right now.
          I believe that very very smart people are in Wall St. now because that’s where the money is. I also believe since Don Regan (Merrill Lynch) practically ran the country in the Reagan years, the country has been turned into one giant unregulated bankster casino.

          The middle class has been victimized and that’s why even amongst the posters here, there is a HUGE disparity between living conditions, and that is not just based on education. It is the new reality, and it does not bode well for the future of america, we were stronger when we had a more even re-distribution of wealth, but that has been portrayed as socialism.

          I guess the golden years of america of 1940’s and 1950’s where the top 1% of wealth was taxed at a 90% tax rate was pure socialism, but man, it was sure good for middle america wasn’t it?

    2. AZDavidPhx

      FreeTrader is exactly right. The banks are just responding to the idiotic infatuation that Americans have with real estate. It’s the culture of money for nothing where everyone expects to build wealth by purchasing real estate. The banks just supply the rope to let all these dopes hang themselves with. Villify the hardware store for coming up with new types of rope.

      Look at the strategic defaulters if you want evidence of debtors who can afford to pay but stop. Why are they stopping payment now? Because they overpaid and it must be someone else’s fault. Might as well blame the evil bank.


      1. matt138

        Blame the source – fed and gov/t. The cheap money and gov/t guarantees are the catalyst for the entire disaster.

        If you think more gov/t will solve the problem, you first need to figure out that gov/t IS the problem.

        Irresponsible borrowers – foreclosed on. Irresponsible lenders – bankrupt.
        This is free market regulation and this is what we need.

        Calling on gov/t to solve this problem is like having a drug pusher running a Narcotics Anonymous meeting.

        Get gov/t out of the mortgage market and many large problems will be solved.

        1. Phillip

          That doesn’t solve the problem of the repeal of Glass-Steagall, and replacement of it by the abhorrent Gramm-Bliley-Leach Act in 1999.

          Lax regulations= raw meat for banks and Wall Street. There’s your credit bubble and ruined economy in a nutshell.

          1. matt138

            You’re not looking far enough up the food chain. More gov/t requires more gov/t which requires more gov/t.

            People should be scared that a bank can go out of business and they lose money. They won’t deposit money unless the return justifies the risk. Banks should be scared to go out of business. They won’t lend unless the return justifies the risk. Viola – consumer credit driven society absolved. Obviously it can’t be done overnight because we’re in too deep. It will take 5 fiscally tight, economically viable, don’t care if all you voters hate me because i have guts presidential terms to undo the mess the altruists have buried us in.

            The glass steagall solution is get the gov/t to insure and regulate everything. It sounds great on the surface. The intentions are good sure. But as with most gov/t programs/regulations designed to help out, a larger problem is created (see 70% GDP related to consumer spending). Just like fannie, freddie, fha, social security. See a trend here? Major FAIL.

            We have become a society where nobody loses; the result will be that everyone will end up losing. Kids, it’s ice cream if you win and ice cream if you lose. Lose your job? Can’t make house payments? Loan portfolio not looking so hot? Bad credit? No problem! The gov/t will ride to the rescue to make sure nobody loses and everyone can borrow. This is happening and has been happening for decades – crystal clear! We are all going to lose (standard of living) because WE, collectively, have been bred to be altruist. Pun intended.

  7. The Dark Avenger

    Surprisingly, the least numerate were not making loan choices that differed much from their peers.

    Not really, if one considers the fact, that at least according to the Wiki article, lots of subprime loans didn’t have to be subprime in the first place:

    In addition, mortgage brokers in some cases received incentives from lenders to offer subprime ARM’s even to those with credit ratings that merited a conforming (i.e., non-subprime) loan.[81]


  8. thrifty

    Looks like all those in Irvine with prime mortgages can relax. The below paragraph is from today’s Miami Herald business section with the headline, “Prime mortgages going bust at an alarming rate”:
    California – the most populous state, which accounts for more than 13 percent of all U.S. mortgages – seems to have turned a corner in housing problems. It held 21 percent of all foreclosure starts during the first quarter of 2009 but only 14.5 percent in the first quarter of 2010.

  9. Athena

    Four months ago, when stock slide couple hundred point, I write a message in this blog said this is just a hiccough and predict that the stock will tumble in four months later, and indicate that Dow will retest 8000-8500 (and probable 7800).

    I had best stock performance measured by effort during 2007-2008’ crash, and I may get a good chance to make it right again.

    What I also indicated that the future of stock market already written in the script and encrypted by Fed and Wall Street. The cipher to decrypt the message is : “Obama’s 2012 election”.

    The whole scheme is related to the 2012 election along with Bernanke’s ambitious. Bernanke gets re-nominated by Obama with commitment and Bernanke will demonstrate his power so that every future president will like him to be his/her Fed chair.

    The roadmap for Obama 2012 is quite simple, before middle 2011 keep the rate under 1% and keep pumping money to the economics. And let Chinese Yuan currency keep lower so they can provide cheap product and labor. And the implication of this is jobless recovery. The beauty of jobless recovery will keep interest rate low.

    How much money Obama and Bernanke has given to Wall Street’s bankers? Why they don’t want nationalize the banker in financial crisis?
    Simple, Obama is the best politician and Bernanke is one of smartest person in the earth , they don’t want to nationalize the bank (which is best solution for Americans) because they wanted to personalize the bankers. Now they have whole control the bankers, they can bash them, they can ask them to manipulate the stock market, let it stumble so they can keep economics in controlled chaos, so they can keep the rates low.

    1. matt138

      Nationalized banks will work as well as a nationalized mortgage market. Could that be considered a vertically integrated atom bomb?

      1. Phillip

        Wrong. Nationalizing banks would have put us in better shape than our ill-chosen alternative–bailing them out. Our host has wisely elaborated on this in previous posts.

        1. matt138

          Socialists always argue the less worse option. Spread the pain out to everyone. In reality it is a another form of kicking the can further down the road. either way the money is flushed. Nationalizing will only create a bigger disaster later.

          Unfortunately, we have been pushed so far down the road by everyone who “means well” (see NAR for a perfect example)that a viable alternative, a prudent alternative, is impossible because the already created disaster is too great. So let’s keep justifying the less worse options. It’s the same thing the banks are doing extend pretend.

  10. Bill M

    Kids who were great at math grew up to be engineers. The kids who cheated off of them grew up to be bankers.

    1. cara

      Yeah I was a little confused by that one too. Although many of the engineers I new in my Ivy League college went to Wall Street, as did some of the physics post-docs.

      1. matt138

        When the mad scientists create massive, complex investments that few, if any, understand; we end up with explosions, smoke, and everybody standing around the aftermath wondering what the hell happened.

        Investing is a relatively simple pasttime made far more complicated than it need be. If you can’t understand it, don’t put your money in it. Vote with your pocketbook.

        1. Swiller

          Now that I think about it, Greenspan could have just been a unusually large gnome.

          Gnomes running Wall St.

  11. Long Beach Renter

    IR, I think you’re being way too harsh on that study quoted in the Economist. The study isn’t trying to apportion blame between borrowers and bankers; it’s looking at a very limited topic: what differentiates the kind of borrowers who keep up on their subprime loan from those who don’t? This is one of many, many things about the bubble that it would be useful to understand better. There’s no need to react as if an economist who tries to clarify this particular question is an elitist or is necessarily part of a movement to absolve bankers of blame. We need lots of economists to look at lots of specific questions like this, so that as we synthesize the results into a big picture of what went wrong and how to fix it, our big picture is based on sound data rather than on personal impressions and anecdotes.

    Personally, I found two claims from that study very interesting: 1) that numeracy doesn’t affect your tendency to get into a bad loan situation; 2) that numeracy does affect your tendency to keep up on the loan once you get into it. I would actually have guessed the opposite on (1), so that’s an aspect of human behavior that wasn’t obvious to me. Those facts may describe only a tiny part of what happened, but they’re still useful as we think about what reforms are needed.

    1. IrvineRenter

      I might be more inclined to agree with your more benign interpretation if the results were something actionable. In my workings with homebuilders, I have been involved in customer surveys. There are many data points you can gather about your customers that are interesting, but they don’t give you anything useful. I don’t see any practical value to the information they obtained, unless they were exploring the idea of giving math tests to borrowers.

      1. Geotpf

        I think the point was a political one; that is, they were trying to determine whether or not the banks confused “poor simple folks” (that is, stupid people) into goofy loans and buying too much home. The result seemed to be that people who were bad at math were bad at keeping to a budget (duh), but that they didn’t seem to pick and one type of loan product more than those that were good at math, so kind of a mixed result.

        1. matt138

          Are we shocked at the mixed result?

          If someone will lend you $500K and you have to put up $0 to buy something that will go up 30%; would it be better to pay more or less per month for free money?

          This is clearly a short term speculation game for every color, race, creed, class, IQ, etc. Smarts is measured by how quickly you jump ship unscathed.

          If your realtor has been snorting koolaid packets and you believe his lack of market knowledge – chances are you are screwed.

      2. Long Beach Renter

        I don’t think every study needs to be directly “actionable” to be worthwhile. Sometimes it’s good to just develop an understanding of something, even if you don’t know yet what you will do with the knowledge.

        But in this case I do see at least one actionable point. The study suggests that many relatively numerate people, who ought to be more capable of understanding their mortgage papers, failed to see they were being given bad terms. If numeracy does not prevent borrowers from entering unwise loan agreements, to me this argues for tighter regulation of the lending business. We shouldn’t assume, going forward, that borrowers are rational and capable of looking out for their own interests in this area.

  12. Mark

    Great post. I’m not brilliant at math at all. I think I’m B- decent at it. It’s probably because of the financial math not making a lick of sense to me that I’m renting now and not getting foreclosed on (and sued by lenders).

    Speaking of suing by lenders, what do you make of Senate Bill 1178 and the CAR’s support for it?
    There’s a claim that borrowers “didn’t have a clue” that they were foregoing certain rights by refinancing (and presumably taking some cash out in the process).

  13. QueenCityEddie

    The 2/28s were designed to appeal to people who believed in ever increasing house prices and either could not afford a traditionally amortizing loan or intended to be gone after the first 2 years in any case. Superior numeracy skill, to the extent that it would have cast a precautionary light on signing up for the final 28 years of the deal, was pretty much irrelevent to the borrower’s decision, because they were buying into the appreciation option, not the house specifically, which lowers the barriers to taking or damaging the real property on exiting: it obviously was a very bad house since it did not obey its master’s wish to have a big capital gain within 24 months. Crying children are slapped around, dogs get kicked, wives are punched…it pretty much the same instinct.

  14. theyenguy

    1) Yes, as you relate: Since the housing bust began … subprime borrowers got kicked to the curb. Contrast that to what has happened to the alt-A and prime borrowers whose loans were just as toxic as subprime loans; they have been allowed to squat.

    Irvine does not have a preponderance of subprime loans; as its population is more upscale.

    Many times subprime lenders targeted whole neighborhoods and have by now foreclosed on broad swaths of low FICO scoring, that is working class and low income people. This includes Englewood, Illinois; one can see where real estate was decimated by subprime lending and subsequent foreclosure by using these tools:

    Blockshopper Englewood IL Neighborhood

    Redfin Englewood IL Neighborhood

    City-Data Englewood IL, 60621

    AOL Neighborhoods Englewood IL

    2) Zillow shows comparable homes valued at $260,000 of course these probably had kitchens intact. The property is located next to freeway; can you imagine the noise.

    3) I feel sorry for the prior occupants, they will eventually be tracked down and hounded by debt collectors who will garnish their wages for the recourse loan mentioned. They will live in poverty for quite some time. They will learn it wasn’t worth it to vandalize the property. Yes, DB will sell the recourse loan to a bill collector, probably in Buffalo NY for 2% to 20% on the dollar. There are some who make money out of making life miserable for others.

    4) Deutsche Bank National Trust bought the property at auction on 10/6/2009 for $372,182; perhaps you could comment in future articles why this type of thing happens as its list price is much lower and sale price is going to come in even lower.

    5) You relate: This study is offensive. It provides no useful or actionable information. What are we supposed to do, start giving borrowers math tests? It was clearly undertaken to support an agenda and disguise the truth. My reply is that I seldom find truth (that which is reliable for belief or that which is a trustworthy promise) anywhere — seldom in relationships, in the media, in the workplace, in politics, in real estate dealings, in churches, anywhere. Truth is often obscured, covered up, hushed up, hidden, written off and denied.

    5) I favor leasing. I sometimes wish I could work for DB or other company as a property rehabilitator/leasor and fix the place up and lease it out; but then again, I’m retired. I do not work any more; I blog and warn people of the terrible depression that is coming. Maybe there will be one or two who will invest in gold and preserve his morals and sensibilities from what is about to occur.

    1. QueenCityEddie

      Gold works best if things really appear bad, but never truly get desperate. If that happens, then the critical thing it to time your exit, because as soon as people become generally aware that the world isn’t coming apart, totemic assets like gold retreat in value quickly. If we ever get into a very desperate state, then having gold is probably a bad thing for most people, as trying to use it exposes you and your family to a lot of people who will want to take it from you and won’t be very nice when doing so….it wasn’t called the barbaric metal for nothing!

    2. no math test

      Banks need not give math test to borrowers. Banks are supposed to do the math for borrowers and for themselves (banks). Often, it was not a bad loan but a bad decision to buy in an inflated market with payments that were not affordable long term. I tell you, with my 800 FICO, it was tempting to buy with a house with an Option ARM loan that allowed negative amortization for the first 5 years, because the payment would have been so low and you get to live in a house – not a paltry apartment. I decided against it because I’m financially conservative, but I can see others who live more for the “moment” jumping with both feet.

    3. matt138

      YenGuy I give you the new nickname Black Swan. I really hope you are wrong but have a bad feeling you could be right.

  15. Soylent Green Is People

    These conversations remind me of the Gunfight at the OK Corral. Everyone is wearing black hats. Fightn’ words are exchanged, then everyone reaches for their pointing fingers saying “you did this” and “not me, YOU did this”.

    As part of the Bankerster Class – yes, I sling loans for a living – I know we as an industry put some pretty easy money out there. It was simple to get, cheap to arrange, and given out with very shoddy advice as to what a borrower was facing if the worse case scenario came by. What was missing in all this was the compulsion to sign on the bottom line. Even the Devil himself requires that you sign your name on the contract line when you sell your soul. The mortgage contracts are long, tough to read – but not impossible – and there were a few consumer protections in place at that time to keep buyers from jumping into the abyss. Most buyers, egged on by CNBC, “Flip that House” shows, Home Depot ads, and Realtors all drumming the same voodoo chant of “housing never goes down” found the push to the dark side irresistable.

    Yes, bankers offered cheap loans and inexhaustable means of indebting oneself – lines and lines of HELOC money, but nobody forced these future renters to snort their way to poverty.

    1. DarthFerret

      SGIP: “Yes, bankers offered cheap loans and inexhaustable means of indebting oneself – lines and lines of HELOC money, but nobody forced these future renters to snort their way to poverty.”

      No one is saying that these stupid homedebtors were coerced. I couldn’t care less about them! What I care about is the destruction YOU (yes, you personally) and people like you have wreaked upon our economy and our world.

      The point is NOT that banks were supposed to be smart enough to save idiots from themselves.

      The point is that banks were supposed to be smart enough to save THEMSELVES from IDIOTS!

      If you and your industry had done your jobs competently, we the taxpayers wouldn’t now be forced (against our will!) to save the banks from themselves. The way that banking is SUPPOSED to work is that we deposit our money with organizations that have the experience and discipline to be good stewards of it. There will always be a bountiful supply of idiotic, greedy consumers, but depositors (and now taxpayers) generally don’t hand them piles of cash like we do to the supposedly wise banks. If I wanted to deposit my money with stupid, greedy individual consumers taking out exotic home loans, why do I need a bank for that? I can just start handing it out at the nearest street corner.

      SGIP: “As part of the Bankerster Class – yes, I sling loans for a living”

      Thank you for admitting your guilt in this crime. Please report to Internment Camp A for orderly disposal.


      P.S. I recommend not revealing your profession in public. For the next 30 years or so, it will have a reputation roughly equivalent to criminal defense lawyers, used-car salesmen, and tobacco industry lobbyists.

      1. matt138

        Stop blaming the loan guys. Where did this infinite supply of cheap money for bad loans come from?
        Somebody has to be stupid enough to put up the money for these loans! Loan guy is just the middle man. I guarantee trying to talk someone out of one of these loans was near impossible because any advice would fall on deaf ears.

        1. avobserver

          Banks are faceless, soulless business entities that by design always have their priority set on maximizing profits for their shareholders. Top management teams at these banks are hired guns (agents) whose compensation is usually heavily loaded with stock options. Short-term (quarterly) earnings performance drives business decisions more than anything else.

          Suppose you were the CEO of a large bank back in the bubble days. You decided that making risky loans to borrowers who had little prospect to repay was not a viable business strategy. So you maintained your conservative standard and refused to go along. But very soon your competitors with their subpar lending standard began to grab your market share and ate your lunch. Their earnings soared and share prices went thru the roof. In the meantime your revenue became stagnant and earnings fell. You had a hard time competing for business because your competitors undervalued risk and made loans below the real cost (adjusted by risk measured by realistic standard). As earnings fell quarter after quarter the share price of your company stock took a major hit. Your stock options became worthless and Board finally decided to throw you out, and no one would hire you because of your bad track record.

          Of course you would be vindicated in a few years after the bubble finally burst. But so what – those who sold shoddy loan products already cashed out during peak and made out like bandits.
          Now tell me again why any bankers would want to be business savvy and hold up the lending standard during the bubble? The real problem is not bankers, but the myopic incentive system we have in place for banks as well as the whole Corporate America.

          As some astute observers already pointed out – the real culprits of this debacle are the clowns in Washington and Federal Reserves, who first set the stage for the bubble (idiotic policies to expand homeownership, low interest rates …) and then failed to regulate after the situation got out of control.

          1. DarthFerret

            Suppose you were the CEO of a large bank back in the bubble days. You decided that making risky loans to borrowers who had little prospect to repay was not a viable business strategy. So you maintained your conservative standard and refused to go along.

            My bank did exactly that! They not only survived the bubble, but they prospered during AND after the bubble.



          2. matt138

            Greed and incentive is good. Fear of loss is better. Long term viability is the hallmark of a sound company. The free market allows companies with this trait to flourish. The free market also buries companies with turn and burn, unscrupulous business strategy.

            Let them run companies into the ground with short term incentive systems. Investors will run for their lives. Let the shoddy ibankers and loan officers go back to selling used cars.

            The free market is trying to purge the system and we won’t let it.

          3. lowrydr310

            Let them run companies into the ground with short term incentive systems. Investors will run for their lives. Let the shoddy ibankers and loan officers go back to selling used cars.

            Too bad the free market wasn’t allowed to be free. ‘Too Big To Fail’ is the biggest scam of the 21st century.

        2. lowrydr310

          If the loan guy turned someone down because his morals and ethics got in the way, there were 100 more loan guys willing to work with that borrower. It’s unfortunate, but you have to feed your family.

  16. Stock Investor

    DarthFerret: “The point is that banks were supposed to be smart enough to save THEMSELVES from IDIOTS!”

    Banks are financial machines. They are not smarter then cars. Banks have no self-conscience or self-preservation. If man sends them over a cliff, they do not stop themselves.

    Faking an accident to collect insurance is very profitable bussiness. Especially if bank is “Too Big To Fall”, and taxpayers are willing pay.

    These criminals are not idiots. So relax and enjoy the ride!

  17. tonye

    I got a degree in physics and math.

    Don’t insult us.

    The financial types would’t recognize a simple differential equation if it hit them on the head.

    God forbid they get asked about basis sets, or Oh God, try to do a coordinate transformation.

    Sorry, don’t kid yourself. Business “math” is “math for non scientists”. The kind we “scientists” mastered in the 10th grade -or sooner.

    Some finance types, specially the accountants, do have a better grasp, but still the math proper is darn simple. The models can be somewhat complex, but not the underlying math.

    The issue then is that us scientists could see the bubble, and we’re a bit too honest with numbers. So we like to work in our labs and deal with stuff that’s really interesting and intellectually challenging.

    Business types, specially your bankers, just didn’t give a shit. They didn’t care about the numbers and couldn’t see where their loans were going to. All they care was simple arithmetic, the one in their paychecks.

    The bankers were crooks.

  18. Phillip

    Of course–IrvineRenter is a socialist. It was only a matter of time before the truth came out. You have truly done us a great service in outing this radical commie.

  19. Texas Triffid Ranch

    I love this argument. During the boom, you couldn’t get your mail without being bombarded with loan offers. I regularly got calls at home, all day long, from Washington Mutual and Wachovia loan reps wondering why I wasn’t buying a home with one of their loans. Apartment complexes and houses that were listed as rentals were blanketbombed with offers from realtors and banks, all promising that home ownership could be theirs. Anybody who fell for the hard sell discovered that no matter how poor their financial situation was, they could get a loan. Even better, the strategy was to get them to buy as much house as the loan could handle, whether or not they actually needed it. Not having owned a house before, could you blame people for being told they could get up to a $400,000 and jumping all over the opportunity?

    Then, after all of that persuasion, the same scum that orchestrated it all decide that the whole crash was the customers’ fault.

    In a lot of ways, this reminds me of a classic employment routine in the tech arena. Say you have a company where a new position is available, and the CEO wants to put his daughter into the position. She’s not qualified, and the general employment policy is that the company has to make a fair search of potential applicants before hiring family members of executives.

    The move is then to hire technical recruiters to screen all of the potential hires in an area, and then make ridiculously overwrought offers, such as asking about a position that normally pays $30k “Would a starting pay rate of $75,000 a year be suitable?” Well, no rational person is going to pass up a significant raise, so they naturally say “yes”. The recruiter then reports back to the company, stating that they weren’t able to find anybody willing to work for less than $75k, so hiring the CEO’s daughter for $45k is perfectly reasonable. The CEO then bitches about how the employment rate wouldn’t be so high if applicants weren’t so demanding.

    (I have to admit that I had fun with these types once I understood the game. I regularly received calls in 2003 from a company that specializes in placing H1-B visa holders, wanting to know what my base rate was so the recruiters could put one of their applicants up at an even lower rate for a local position. I started answering their base rate queries with “Well, I normally start out at $7 an hour, but I might be able to go as low as $5.50 if it’s a really good job. I actually had one guy shriek for a second before he controlled himself, because I was throwing off his entire scheme: anybody auditing the company would be asking “If this guy was willing to work for less than your usual applicants, why didn’t you hire him?” The calls from that company stopped dead right afterwards, and I haven’t heard from that company since.)

  20. cynthia curran

    Believe it or not, actually tax rates were lower in the 1950’s, since most taxes today are at the local or state level. Also, the top 1% probably even pay less taxes since they were able to put the money in trusts, so its a myth that the top 1 % percent were charge 90 percent in the 1950’s. A book did a study and there was a lot of tax evasion during the era of the so-called high tax rates

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