With the news that a five-member panel of the FCC are considering creating a series of super powerful free WiFi network across America, it’s to be expected that the corporate lobbyists for the $178 billion wireless industry are already working overtime to scuttle these plans.

Conversely, according to The Washington Post, there has been an equally aggressive push coming from tech giants like Google and Microsoft for free WiFi networks “who say a free-for-all WiFi service would spark an explosion of innovations and devices that would benefit most Americans, especially the poor”:

The airwaves that FCC officials want to hand over to the public would be much more powerful than existing WiFi networks that have become common in households. They could penetrate thick concrete walls and travel over hills and around trees. If all goes as planned, free access to the Web would be available in just about every metropolitan area and in many rural areas.

The new WiFi networks would also have much farther reach, allowing for a driverless car to communicate with another vehicle a mile away or a patient’s heart monitor to connect to a hospital on the other side of town.

If approved by the FCC, the free networks would still take several years to set up. And, with no one actively managing them, con­nections could easily become jammed in major cities. But public WiFi could allow many consumers to make free calls from their mobile phones via the Internet. The frugal-minded could even use the service in their homes, allowing them to cut off expensive Internet bills.

In a country where Wal-Mart is the nation’s largest employer and doesn’t really even pay a living wage, this sort of monthly savings for what has become a necessity of modern life would seen quite attractive for the common man. The costs are surprisingly minimal, too.

But what of the poor, put-upon media barons who won’t be able to continue sticking the masses with a monthly cell phone bill? Should the management and stockholders of AT&T, T-Mobile, Verizon Wireless, Intel and Qualcomm be disallowed from skimming around a hundred bucks a month from the bank accounts of the average American?

Of course, the wireless telecom and cable providers are determined not to let this happen. In a January letter to FCC Chairman Julius Genachowski, the architect of this ambitious plan, and a powerful member of the Obama inner circle, several major companies argued that the government should concentrate on selling the public airwaves to private business, and raising money for the US Treasury that way, rather than going with the free WiFi for all, option.

They would feel that way, wouldn’t that??? LOL.

Naturally, the Republicans are lining up behind this ridiculously blinkered, backwards “free market” approach. Who can forget watching the Tea party dolts who were against net neutrality—because someone on Fox News told them it was something “socialist,” I guess—and braying like buffoons for the privilege of being able to give more power to the telecoms, even if it would mean seeing their own monthly bills rise... because, um, THEIR FREEDUMBS were apparently at stake.

This is a different kind of free market entirely that we’re talking about, one that could alter American lives in profound ways, spurring great innovation and perhaps even unprecedented high tech job creation. The saying goes that there’s no such thing as a free lunch, but free WiFi is already occurring in New York City and parts of Silicon Valley. In January, Google announced that it was providing free WiFi for NYC’s Chelsea neighborhood (where Google is headquartered in Manhattan). Soon that will extend to indoor fiber optic wiring as well. Google also rolled out high-speed fiber-optic Internet coverage recently in the Kansas City area, with download speeds up to 1 Gigabit per second. That’s pretty good. In fact it’s approximately 200 times faster than your home broadband connection. It’s not five times faster, it’s 200 times faster. (So much for innovation among the cable companies themselves, eh?)

Google’s blazing fast fiber optic service is beginning to draw hi-tech start-ups to Kansas City. Who would have thought that would happen a few years ago?

Furthermore, the major wireless carriers own far more spectrum than would even be necessary to provide public WiFi, and it would also improve their existing wireless networks for their own consumers. The only downside for this is for a relatively tiny group of stockholders. The benefits for Americans overall? Well, they seem limitless in terms of what can be imagined from 2013.

Designed by FCC Chairman Julius Genachowski, the plan would be a global first. When the U.S. government made a limited amount of unlicensed airwaves available in 1985, an unexpected explosion in innovation followed. Baby monitors, garage door openers and wireless stage microphones were created. Millions of homes now run their own wireless networks, connecting tablets, game consoles, kitchen appliances and security systems to the Internet.

“Freeing up unlicensed spectrum is a vibrantly free-market approach that offers low barriers to entry to innovators developing the technologies of the future and benefits consumers,” Genachow­ski said in a an e-mailed statement.

He’s 1000% right. Although not seeing the economic benefits flowing upwards at first may discombobulate their tiny brains, how idiotic would even Republicans have to be not to see the logic of this decidedly free market approach? If they balk, they need to be reminded of what the earlier—but far more technologically limited, pre-PC, iPad and smartphone, of course—Reagan-era changes in the management of the public airways wrought for the economy.

This is a real us vs.against them situation. The fattest cats versus EVERYBODY ELSE. It’ll be interesting to see how this shakes out. It’s an idea that’s time has come—IF NOT, WHY NOT—and I don’t think it’s going to go away until there’s free Wifi for all. The cat’s out of the bag and it ain’t going back in.

 
Our brainy friend Charles Hugh Smith posted this chilling essay about the “limits to growth” mankind faces in this century at his essential Of Two Minds blog. As he points out, the innovations of recent decades have more often than not served to destroy jobs, not create them. (I can’t source this because someone told me this conversationally, but apparently there is one factory, owned by Samsung, that manufactures nearly all of the world’s supply of a certain size HD flatscreen (not the entire TV, just the screen). The factory, I was told, employs fewer than twenty workers! Keep that in mind as you read the following).

The common feature of the transformative technologies of the 20th and 21st centuries is that they were one-offs that cannot be duplicated.

What if the engines of global growth that worked for 65 years (since 1945) have not just stalled but broken down? The primary “engines” have been productivity gains from industrialization, real estate development and expansion of consumption based on the continual expansion of debt and leverage—in short-hand, financialization.

The Status Quo around the globe has responded to the obvious endgame of financialization (the 2008 financial crisis) by doing more of what has failed: expanding credit and leverage, flooding the global economy with liquidity (money available for borrowing), credits and subsidies for real estate development and a near-religious belief in “the next industrial revolution” that will spark rapid growth in employment, profits and productivity.

“The usual suspects” for the next engine of growth include nanotechnology, biotechnology, unconventional energy and Digital Fabrication, i.e. 3-D printing and desktop foundries. But are any of these capable of not just replacing jobs and revenues in existing industries, but creating more jobs and expanding revenues and profits?

There is a growing literature on this very topic, as many start questioning the quasi-religious faith that there will “always” be another driver of growth, i.e. the expansion of wealth, profit, employment and assets.

The Status Quo dares not even entertain this question because the only way to service the fast-rising mountain of debt that is sustaining the Status Quo is to “grow our way out of debt,” i.e. expand the real economy faster than debt.

The past 250 years has been one long “proof” that we can indeed “grow our way out of debt” because the low-hanging fruit of industrialization and cheap, abundant energy enabled wealth to be created at a faster pace than debt.

Clueless Keynesians mock those questioning the possibility that the low-hanging fruit has been plucked by noting that doomsdayers were actively decrying the ballooning debt of the British Empire in the mid-1700s. We all know how that story ended: what looked like crushingly massive debt in 1780 was reduced to a trivial sum by the rapid expansion of industrialization.

But suppose the end of cheap, abundant energy (replaced by abundant, costly energy) and the Internet spells the end of centralized models of growth? What if all the innovation currently bubbling away only produces marginal returns?

Take biotechnology for example. Those with little actual knowledge of biotech are quick to latch onto the potential for genetic engineered medications, biofuels, etc. What they don’t ask is if these technologies can scale up while costs decline, i.e. the computer technology model where everything progressively gets cheaper and more powerful.

Biofuels may have promise, but it still takes “old fashioned” energy to collect the feedstock, and it is a non-trivial task to keep micro-organisms alive on the scale that would be needed to produce a useful amount of liquid fuels, i.e. a few million barrels every day. Some processes may not scale up, and others may not see any significant reduction in fuel costs once the full input costs are calculated.

Genetic engineering also may not scale up—it may be limited by key barriers of individual patient complexity and by intrinsic costs that do not drop enough to make a difference.

Consider the diseases that have almost been eradicated—polio, for example—and the lifestyle diseases such as diabesity. The wave of diseases that were eradicated were caused by bacteria or viruses: a vaccine or agent that disabled or killed the bacteria/virus wiped out the disease.

Diabesity, cancer and heart disease are not caused by a single virus or bacteria. The “one med/vaccine works for all” model has failed and will always fail because diabesity and other lifestyle diseases have multiple, non-linear causes that are beyond the reach of a single “solution.” These diseases may well be tied to epigenetic factors, for example, the interaction of “junk DNA” with environmental stresses that extend back into the individual genome.

What we face is the confusion of symptoms and effects with causes. Lowering cholesterol is not the “magic bullet” many hoped for, and neither was hormone therapy.

In the technology sector, it is clear that the Internet is destroying entire sectors of employment. The jobs that have been lost for good have not been replaced by jobs created by the Internet, nor is there any credible evidence to support this hope: automated software continues chewing up one industry after another, and the politically protected fiefdoms of healthcare (sickcare), education and government have yet to taste the whip of real innovation.

Rather than add jobs, we will lose tens of millions of jobs as faster-better-cheaper breaches the walls of these massive politically protected fiefdoms.

Healthcare spending is clearly in terminal marginal return: our collective health continues to decline in key metrics even as spending doubles, triples and quadruples. The same can be said of defense, education and many other industries.

Sectors such as agriculture have already seen employment decline by 98% even as production rose; there are still improvements in agriculture (robotic milking machine, for example) but the low-hanging fruit in agriculture as well as in medicine, education, etc. have all been picked.

The next wave of innovation will destroy protected profit centers and employment; even the Armed Forces are not immune, as the “ships of the future” will have relatively small crews and robotic drones will replace high-cost, high-employment weapons systems.

The semi-magical belief that technological innovation will create wealth in such quantities that all other problems become solvable may well be false. We may have entered an era of marginal returns, where innovations destroy jobs, wealth, assets and debt—the very foundations of “growth.”

I have begun to speculate about a future where energy might be abundant but few can afford to consume much: money and income may be scarcer than energy.

The one innovation that might energize an entirely new field of employment is digital fabrication, the decentralization and distribution of production. But this will also creatively destroy jobs dependent on the present supply chain.

National governments have over-promised entitlements to their citizens on a vast scale, and the current “solution” to the mismatch of promises to national surplus is to borrow monumental sums to fund the promises. If innovations actually shrinks employment, incomes and wealth, then the base for taxes and debt will quickly shrink to the point that the debt is unserviceable. The Status Quo will collapse financially, even if energy and labor are both abundant.

Consider END OF GROWTH - six headwinds: demography, education, inequality, globalization, energy/environment, and the overhang of consumer and government debt. (via Zero Hedge)

The point made in this lengthy essay is a powerful one: the common feature of the transformative technologies of the 20th and 21st centuries is that they could only happen once. They are one-offs that cannot be duplicated. Doing more of what has failed will only set up a grander failure as returns on all our debt-based “investments” become ever more marginal and the return on increasing complexity drops into negative territory. Once complexity yields negative returns, the systems that depend on complexity quickly destabilize and implode.

Read more
No More Industrial Revolutions?

The Collapse of Complex Business Models

This is a cross-post from Charles Hugh Smith’s Of Two Minds blog. You should bookmark it and read him daily. Charles Hugh Smith’s newest book is Why Things Are Falling Apart and What We Can Do About It

Count the clowns in this picture. Hint: They’re all wearing suits and ties.

During last night’s epic Rachel Maddow piece about the Republican party’s mind-boggling real-time implosion, she described the GOP as a dog being wagged by the tail of the conservative movement and pondered why some of the movement’s most powerful pols, like Jim Demint, are picking up their toys and leaving Congress:

“[A] huge internal fight including screaming matches in their own caucus… they’re just turning off the light and abandoning what they’re doing and nobody really knows why.”

Obama has all the leverage now. If he can’t manage to negotiate a modest tax increase for the wealthy without limiting future cost of living increases for poor and middle class Social Security recipients, he’ll have proven himself to be one of the worst—if not THE worst—presidential negotiators of all time. He’s already offered up more than he had to (WHY?) and also demonstrated that his promises made during the campaign were nothing but bullshit.

Frankly, I never thought Obama was offering lefties all that much to begin with—he just wasn’t named Mitt Romney—but these guys are pathetic, why bargain with them at all? Now’s the time to shove it up their asses, if for no other reason, just on principle.
 

Visit NBCNews.com for breaking news, world news, and news about the economy

 
Someone should hack into Fox News, divert their broadcast signal and play this wonderfulness on a loop:

Things go downhill in a happy and prosperous land after the rich decide they don’t want to pay taxes anymore. They tell the people that there is no alternative, but the people aren’t so sure.

Written and directed by Fred Glass for the California Federation of Teachers, narrated by Ed Asner and animated by Mike Konopacki.

All Republicans who make less than six figures a year need to be strapped into a seat and forced to watch this pitch perfect piece Clockwork Orange-style…
 

 
I’m getting so sick and tired of hearing about the so-called “fiscal cliff” except for the heartening rising chorus of rational voices in the matter—like former Clinton administration Secretary of Labor Robert Reich—who stick to their guns about how to deal with it.

Let’s face it, to go by 2009 and the debt ceiling brouhaha, Obama is one fucking shitty negotiator. Unless there is tons of public pressure put on him to do the right thing, I fear he’ll cave in to the Republicans on raising the retirement age, only modestly raising taxes on the rich and cutting social safety nets. Don’t trust Obama, put lots and lots of pressure on him.

House Speaker John Boehner today made a counteroffer in the negotiations including proposals to increase the Medicare eligibility age and cut Social Security benefits. Forget about the GOP, they’re a lost cause, apply the pressure where it might make a difference, on Obama and the Democrats.

Find the necessary savings in corporate welfare and in the bloated military budgets, it’s the only acceptable path (and one with a whole lot of knock-on effect WIN along the way).

Although Reich addresses his essay to Democrats, I’d prefer to think of this as appealing to every American who isn’t a fucking idiot…

Democrats, here are eight principles to guide you in the coming showdown over the fiscal cliff:

ONE: HOLD YOUR GROUND. The wealthy have to pay their fair share of taxes. That’s what the election was all about, and we won. It’s only fair they pay more. They’re taking home record share of national income and wealth, and have lowest effective tax rate in living memory.

TWO: NO DEAL IS BETTER THAN A BAD DEAL. You’re in a strong bargaining position. If you do nothing, the Bush tax cuts automatically expire in January, and we go back to rates during Clinton administration. Which isn’t such a bad thing. As I recall we had a pretty good economy during the Clinton years.

THREE: MAKE REPUBLICANS VOTE ON EXTENDING THE TAX CUTS JUST FOR THE MIDDLE CLASS. After all the Bush tax cuts expire, have Republicans vote on an extending the Bush tax cut just for the middle-class. If they refuse and try to hold those tax cuts hostage to tax cuts for the wealthy, it will show whose side they’re on. They’ll pay the price in 2014.

FOUR: DEMAND HIGHER TAX RATES ON WEALTHY, NOT JUST LIMITS ON DEDUCTIONS. Don’t fall for Republican offers to limit some tax deductions on the wealthy. Demand we go back to higher tax rates on the wealthy and eliminate their unfair tax loopholes, so they truly start paying their fair share.

FIVE: DON’T CUT SAFETY NETS. Don’t sacrifice Medicare or Social Security, or programs for the poor. Americans depend on these safety nets and can’t afford any benefit cuts.

SIX: DON’T CUT INVESTMENTS IN OUR FUTURE PRODUCTIVITY. Education, basic R&D, and infrastructure aren’t spending; they’re investments in our future prosperity. If the return on these investments is greater than the cost, they ought to be made, period.

SEVEN: CUT SPENDING ON MILITARY AND CORPORATE WELFARE. You want to cut, cut spending on the military — which now exceeds the military spending of the next 13 largest military spenders in the world combined. And cut corporate welfare — support to agribusiness, oil and gas, Big Pharma, big insurance, and Wall Street.

EIGHT: PUT JOBS BEFORE DEFICIT REDUCTION. Finally, Don’t cut the budget deficit as long as unemployment remains high. Otherwise you’ll cause the economy to contract, making the deficit even larger in proportion. That’s the austerity trap Europe has fallen into. We need to create American prosperity, not European austerity.

Remember: Jobs come first.

Hear, hear! Please spread this message far and wide.
 

 
With the holiday shopping season about to shift into high gear (I’m sure I’m not the only one who heard Christmas carols prior to Halloween… what’s that all about anyways?) here’s an early tip for that thoughtful, philosophical type on your list, the newest book by our esteemed, super-smart pal Charles Hugh Smith, Why Things Are Falling Apart and What We Can Do About It:

Things are falling apart—that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

This week only there is a 20% discount on the Kindle edition: $7.95 (normal retail $9.95). There is also a print edition of Why Things Are Falling Apart and What We Can Do About It.

Read daily essays from Charles Hugh Smith at his Of Two Minds blog.

Bloomberg doing his best approximation of a Christian rock album cover, and half as sincere
 
New Yorkers are pissed off with local response to Sandy. Trains in poorer neighborhoods have been lower priority for restoration. Bloomberg defended going through with the New York Marathon while they were still fishing bodies off of Staten Island. When public sentiment finally forced his hand, he was demonstrably begrudging, perceiving the cancellation as a huge concession on his part.

Afterwards, it took forever to bring the (highly portable) marathon resources from the race points to those in need. There’s a gas shortage further immobilizing the city. People are still waiting in long lines for shelter and food, and necessities, and many areas are still woefully under-serviced. And now there’s been a nasty cold snap.

It only makes sense that Bloomberg make an appearance for a photo-op. Fortunately, the awesomely bitter New York spirit takes no truck with his unctuous performance. Notice how he just walks away from his constituency and instead drops a sound bite on the cameras.
 

Because massive privatization, environmental and financial deregulation, and the destruction of what little social safety net we have is cool if we can smoke weed
 
As we endure this seemingly never-ending and completely grueling election season, one of the most iniquitous injustices pervading the public discourse is the undemocratic nature of the two-party system. Beyond the obvious advantage of the wealthy in electoral politics, so institutionalized are these major parties that they can’t possible represent the needs and values of such a diverse electorate! There must be a better way!

Enter Gary Johnson, the Libertarian candidate. He’s the man’s man’s candidate, assuming of course, all ‘men’s men’ are my Uncle Levi, who runs a chop shop in Georgia, the walls of which are adorned with similar posters, albeit generally featuring I-Roc Zs.

The poster, created by a fan and shared on Johnson’s facebook page, has been received with quite the controversy, both in support and condemnation. Here are some highlights:

“If we get an ad for the ladies, may we please opt for an intelligent, respectful, attractive, mature gentlemen in stylish clothes reading the contribution[sic? Constitution?], or labeling our GMOs, in lieu of a mostly naked guy on a sandless beach?”

“Oh come on and enlighten up folks. It got my vote.”

“Stop hating yall…sex sells! GJ for prez 2012.”

“How does Gary feel about GMOs? I have not heard him speak on the issue. Anyone know?”

“As a libertarian, he stands for small government. This means saying no to crony capitalism, which gives monopolies to the Monsantos of the world. Without those monopolies, and having a free market returned, corporations like those lose their power and, real organic foods will once again make a comeback to the mainstream and make short work of Monsanto and its domination over US food supply.”

“I am much more offended by corporate whores than pretty girls.”

Regardless of your opinion on the ad, it sends a clear message: Gary Johnson isn’t like those sexist, Republican prudes! And Gary Johnson believes women should make their own choices about their bodies!  And those values inform his policies! From his website:

Life is precious and must be protected. A woman should be allowed to make her own decisions during pregnancy until the point of viability of a fetus.

And there you have it! Clear as day! No room for patriarchy in that language! I mean, unless you’re trying to abort a “viable” fetus, you have complete body autonomy! Because they’re the party of Liberty. And if we can just get government out of the way, we can be free to pursue a future where we’re rewarded for initial advantages and natural strengths!

Capitalism: it owns your titties. And will try to sell you “better” ones.

 
If Paul Ryan is the dude that completely misinterprets Rage Against the Machine, we can probably surmise that Rahm Emanuel secretly yearns for post-grunge butt-rock…

If you haven’t heard, 26,000 teachers and staff have gone on strike in Chicago, the first CTU strike in 25 years. While certain idiots seem to think a few days out of school will forever render children feral little beasts, the teachers are fighting lay-offs, school closings, increases in hours, and the measuring of student (and teacher) success by standardized test scores. Oh yeah, and they want fucking air conditioning.

My beloved socialist rag, Jacobin magazine, sets the record straight:

“[Rahm Emanuel] brazenly canceled a contractually-obligated four percent cost of living raise for teachers last year; he pushed hard for a 20 percent longer school day while offering a two percent pay increase (a fight he eventually lost); he has unabashedly denigrated teachers, accusing them of not caring about the well-being of their students. Despite campaigning on promises of reform, he has gone full-steam ahead on the city’s Tax Increment Financing (TIF) system, which diverts huge amounts of tax dollars from public institutions like schools and libraries and funnels them to wealthy corporations.”

With Democrats like these, who needs Republicans?

Even Diane Ravitch, former Assistant Secretary of Education under that Marxist union thug, Comrade George Bush the First, has written extensively on how these sorts of “reforms” hurt children (The Death and Life of the Great American School System: How Testing and Choice Are Undermining Education), only to be ignored by Democrats, and attacked by Republicans.

If you’d like to donate to the strike fund, go to here.

And if you’d like to harass Nightline Host Terry Moran, for being a sanctimonious talking head devoid of journalistic integrity, I suggest you tweet my favorite YouTube video at him!
 

 
Over the weekend, there was a fascinating article about the foreclosure crisis in Southern California that appeared at the Huffington Post with the title “San Bernardino Eminent Domain Fight Closely Watched By Other Struggling Communities.” That title might not have grabbed you, but what’s in the article, penned by Ben Hallman, is extraordinary and needs to gain more traction.

If you read what’s written there and disregard all of the “opinion” (what Rahm Emanuel and the banking PR flacks have to say) and just concentrate on the plan of action that’s being offered to deal with the mortgage crisis, it’s a winner.

It’s being proposed that “eminent domain,” the power local government have to seize property for the common good, be employed to help stressed communities in San Bernardino County. The idea for this originates with Steven Gluckstern, the executive director of Mortgage Resolution Partners: Local authorities could seize home loans—not properties—and “condemn” the ones that were underwater, though not in arrears, and held by private trusts. The local government would then forgive the debt in excess of current market value of the home. Homeowners could then refinance at the new, lower value, freeing up hundred of dollars per month, and boosting the local economy and jobs growth. The pension and institutional investment funds that actually own these loans would get paid fair market value. For investors in Inland Empire property, this will mean taking a significant haircut.

It’s estimated that there are around 150,000 homeowners in the county who owe more on their homes than they are worth, yet only a small percentage of them would actually qualify for a loan modification because their credit is bad.

One estimate sees as many as 42,000 homeowners in San Bernardino County benefiting from the plan. It would have a significant impact on the lives of county residents.

It’s also a beautiful solution that fucks over the capitalist greed-heads who deserve it the most. They made investments in bad securities. That’s capitalism, baby! Shit happens!

It’s thrilling to think we could be on the verge of seeing something like this occur:

This old railroad town in the heart of the Southern California foreclosure belt doesn’t attract many visitors these days, especially not in the blazing summer heat. Yet on a recent Thursday morning, a handful of well-heeled business travelers from the East Coast hurried along a sidewalk to address a government official they have come to know well.

Gregory Devereaux is the chief executive of San Bernardino County and its 2 million residents. At his urging, local authorities are considering a proposal that would allow local governments to exercise their power to seize private property without landowners’ consent in a dramatic—some say radical—new way.

Governments usually use this power, known as eminent domain, to acquire private land for public purposes, such as roads or utility lines. But this plan, proposed by a San Francisco-based venture fund Mortgage Resolution Partners, calls for government authorities to seize the mortgages of underwater borrowers, paying the investors that own them a fraction of what they are owed, using money borrowed from the fund. Homeowners could then refinance with a federal loan at a much lower rate, based on what their home is actually worth instead of what they owe.

Supporters say the plan would send a supercharged bolt of energy into the housing market, spurring economic development and preventing even more of the foreclosures that have wrecked many communities.

“It is a disaster of epic proportions,” said John Vlahoplus, chief strategy officer at Mortgage Resolution Partners, of the dramatic decline in home prices that in many areas has left homes worth less than half what the borrowers paid. “The crash has devastated the family wealth of these communities.”

Gregory Devereaux… you are my new hero.

You’ve met the good guys, now meet the bad guys (so to speak):

The group from the East Coast, representatives of the mortgage finance industry, don’t like this idea much at all. They have worn a path to Devereaux’s office in recent months to tell him, and anyone else who would listen, that the proposal amounts to nothing less than a threat to the entire mortgage finance system, and an assault on free enterprise and the U.S. Constitution.

They’re sort of right about that, but have you been in San Bernadino County lately? It’s very very easy to see why a plan like this would be popular in the Inland Empire: It’s getting to be just like Mad Max there. The local economies will never recover with so many residents underwater on their mortgages. If you owe $400,000 on a house that’s worth $150,000, tops, not that you could sell it anyway, just what the fuck are you going to do next? What if you lose your income? Then what’s your move?

You don’t have one. The bulldozer-like plan that Mr. Devereaux is proposing has the potential to change the lives of tens of thousands of desperate families in his county. He’s worried about them, not about some bankers, mortgage brokers and fat cats taking the hit. (Did I mention yet that Gregory Devereaux is my new hero?)

Absent something like this, how would the Inland Empire EVER be expected to recover? It probably won’t be during many of the current generation’s lifetimes, we’re talking decades to recover. Seriously, it’s fucking GRIM there. Really, really super grim. (Comparing parts of San Bernadino to Mad Max is only a slight exaggeration, trust me)

[“Blah, blah. blah” said mortgage industry spokespeople. “Blah blah blah blah blah blah blah” said someone else. Back to what matters…]

Proponents, meanwhile, argue that bold measures are worth considering in the face of a festering foreclosure crisis. Recent modest increases in home prices have done little to help the estimated 16 million underwater homeowners nationwide, who, according to the real estate valuation website Zillow, collectively owe $1.2 trillion more than their homes are worth.

The proposal also comes amidst broad frustration with the Obama administration, which has so far refused to offer a broad-based plan to bail out underwater borrowers, even as taxpayers have spent hundreds of billions of dollars to prop up banks.

“We’ve seen a bailout of the banking industry, but no bailout for homeowners,” said Arie Giddens, a San Bernardino resident whose home is worth less than half the $300,000 she paid for it in 2005, according to Zillow.

About a dozen communities have voiced some level of interest in the eminent domain plan, including Chicago, Sacramento, New York’s Suffolk County and most recently—according to sources familiar with the discussions—Detroit. Not coincidentally, these communities have also been particularly hard hit by the housing crisis. In San Bernardino County, more than half of all homeowners are underwater, and the foreclosure rate is three-and-a-half times the national average.

“Everyone here has a friend or a family member who has lost their home to foreclosure,” said Greg O’Donnell, the development director at Neighborhood Partnership Housing Services, a housing nonprofit in Ontario, Calif.

At the public hearing, Devereaux said the eminent domain plan is still far from reality.

“Thank you very much,” he said more than once in response to the mortgage industry lobbyists’ criticism of the plan. “We appreciate your involvement.”

Gregory Devereaux, you are a badassmotherfucker…

Nothing had been decided yet, he cautioned. Mortgage Resolution Partners has not even submitted a formal plan yet, he said.

What worries the finance industry is that nothing has been ruled out, either.

Officials in other jurisdictions, by all accounts, are waiting for someone else to make the first move. That someone, if it is anyone, will likely be Devereaux. What he thinks could determine whether the eminent domain proposal winds up on a scrap heap of failed ideas to resolve the housing crisis—or sets new legal precedent on the way to providing mortgage relief to a population at the highest statistical risk of losing their home to foreclosure.

It has come to this: More than five years after home prices fell like a rock into a well, the last hope for some borrowers stuck at the bottom could be a public official unknown even to many citizens of his own county.

On Thursday, Mortgage Resolution Partners announced that they are expanding their original proposal to help individuals underwater on their mortgages by including homeowners who have defaulted or are delinquent on their mortgages.

Keep in mind that this is not all bad for the investors themselves. There’s a (theoretical) “silver lining” upside for them, too: Laurie Goodman, of Amherst Securities, analyzed the potential impact of eminent domain mortgage write-downs: “Taking select loans out of a trust could conceivably result in a higher realized value for (the) investors,” Goodman wrote. “Using eminent domain is a novel (albeit aggressive) idea to reach this goal.”

Banks holding loans already use formulas to decide how far they can write down a mortgage and still make money. The same should hold true for mortgages held in trusts, at least that’s the theory.

The top regulator at the Federal Housing Finance Agency, has warned that the agency might “take action” against San Bernardino County should it decide to adopt the Mortgage Resolution Partners. A highly visible supporter of the plan is California’s lieutenant governor, Gavin Newsom. This could get really interesting.
 

Gregory C. Devereaux, Chief Executive Officer for the County of San Bernardino, California

Thank you Michael Backes!