The Fed and other regulators have proposed a set of rules that would put new limits on home mortgages: Borrowers would have to put 20 percent down and would have to show that their mortgage payments would amount to no more than 28 percent of their gross monthly income. The Washington Post makes this sound like doomsday:

Nearly three out of every five U.S. borrowers who bought homes last year would not have met the proposed restriction on total debt, according to an analysis by mortgage research firm CoreLogic....If the rules were in effect now, Todd Pearson of Ashburn predicts he'd be shut out of the market. Pearson wants to sell his house and buy another in Chevy Chase. He says he has no debts other than his mortgage. But he figures his mortgage payment alone would exceed the threshold proposed by the new rules.

You have to admit, these rules do sound pretty tough. In fact, they'd pretty much shut down the entire mortgage industry. So what's going on?

Answer: Lots of financial industry whining. As it turns out, regulators aren't saying that mortgage originators can't make any kind of loan they want. 20 percent down, 10 percent down, 5 percent down, whatever. Go to town. What they are saying is that if mortgage loans are bundled up into securities and resold, they want the issuer of the security to retain 5 percent of the total offering. That's part of Dodd-Frank, and it's designed to give issuers an incentive to make sure their mortgage securities aren't full of toxic waste. If they have to keep a piece of the action on their own books, they'll want to make sure their securities are safe and sound.

However, there's an exception: If your mortgages all conform to the new rules, you don't have to retain that 5 percent chunk. That's all that's happening. You can make any kind of loan you want, but if it's anything other than super safe, you have to keep a piece of it on your books.

The financial industry is in an uproar over this, claiming that it would shut millions of people out of the housing market. That's nonsense. Neither Todd Pearson nor anyone else is being denied a loan on whatever terms they can get one. All that's happening is that when their mortgages get bundled up and resold, the ABS issuer has to keep a 5 percent stake. The mortgage industry is on a rampage over this, claiming that it will dramatically raise the cost of mortgages, but that's nonsense too. Being forced to keep a 5 percent stake probably will have an impact on ABS issuers—that's the whole intent, after all—but the financial impact is almost certainly pretty minuscule. Tom Lawler at Calculated Risk roughly estimates it at perhaps 20 basis points at most on a nonconforming loan. In other words, the rate on nonconforming mortgages might go up 0.2 percentage points. At most. Something on the order of 0.1 percentage points or less is probably closer to reality.

This is yet another case of the financial industry biting the hand that's trying to help it out. The truth is that it would probably be a good idea to require ABS issuers to retain a 5 percent stake in every mortgage bundle they sell. But Dodd-Frank threw them a bone in the form of an exemption for loans that were transparently high quality and virtually certain not to default. And the result? Endless whining, a massive lobbying effort, and glossy four-color demagoguery about hardworking middle-class families being shut out of the mortgage market. Welcome to Wall Street.

Front page image: A GS/Fotopedia

From the New York Times:

Citigroup’s revelation that hackers stole personal information from more than 200,000 credit card holders makes it one of the largest direct attacks on a major bank.

....Details remain scarce, but the disclosure of the Citigroup breach on Thursday quickly turned into a debate on whether the banks and major credit card companies had invested enough money to safeguard the personal information of their customers.

....“We’re not dealing with 14-year-old hacker kids,” said Steve Elefant, the chief information officer at Heartland Payment Systems, which overhauled its security measures after the systems it used to process credit and debit card transactions were hacked in 2008. “We’re talking about 21st-century bank robbers — sophisticated, organized criminal gangs, located mostly in Eastern Europe and the U.S.”

....Big credit card lenders are loath to acknowledge another reason that the breaches keep happening: they are in the business of reducing the financial losses stemming from fraud, not preventing data theft in the first place. As a result, analysts say, they have devoted the bulk of their resources to trying to stop fraudulent transactions from occurring.

Banks might indeed be loath to admit it, but the Times delicately hints at the reason this keeps happening: banks don't care. And the reason they don't care is because there are no serious penalties for these kinds of breaches and consumers have no ability to sue over them. What's more, it's consumers who end up having to clean up the mess if the hack results in ID theft or some other kind of fraud, not the banks. So why bother?

This is something that really ought to be a bipartisan outrage. Banks and other financial players don't care very much about this stuff because they don't have to pay much of a price for things like ID theft and data breaches, but they'd start caring if Congress passed legislation that made them responsible for these costs. That's what Congress did in 1968 for credit card fraud, and banks started figuring out clever ways to reduce fraud mighty quickly. Make them responsible for data breaches and I'll bet they'd figure out how to reduce those too. Alternatively, we could just pass some heavy-handed rules, as Europe has done. One way or the other, though, banks should be responsible for the cost of their own mistakes. That's really not something that Republicans and Democrats should have much reason to disagree about.

Say what?

Former House Speaker Newt Gingrich’s presidential campaign imploded Thursday afternoon with his entire senior staff resigning en masse, according to multiple sources familiar with the moves.

“When the campaign and the candidate disagree on the path, they’ve got to part ways,” said Rick Tyler, a longtime Gingrich spokesman who was among those who left the campaign.

Tyler....Rob Johnson....Dave Carney....Katon Dawson....Sam Dawson....Craig Schoenfeld....Walter Whetsell....Scott Rials have all stepped aside. Much of Gingrich’s early state operation was also headed for the exits, according to a one senior campaign source.

....Among the issues leading to the resignations, according to knowledgeable sources, was the two-week vacation that Gingrich and his wife, Callista, insisted upon taking against the advice of his top political staff. Coming as it did after one of the most disastrous campaign launches in recent memory, it raised questions as to whether Gingrich would be willing to “commit time to the grassroots,” said Tyler.

Hmmm. Something tells me that it takes more than disagreement over a vacation to drive a candidate's entire senior staff away. However, here's a prediction: once we learn the whole story, Callista Gingrich will somehow be involved.

UPDATE: Fred Barnes kicks off the Callista bashing: "The problem was the wife. Aides to Newt Gingrich have resigned from his presidential campaign in protest of what they felt was a takeover by Callista Gingrich, the candidate’s wife since 2000."

The Fed’s Jeremy Nalewaik argues that a measure of GDP using income levels is a more reliable guide to the actual business cycle than the traditional measure of GDP using spending. If that's true, says Justin Wolfers, the recession started nearly five years ago and was much deeper than we think: GDP per capita dropped 7% and is still well below its pre-recession level.

And what are we doing about this? Pretty much nothing. Apparently we're content to follow Japan into oblivion.

Mike Konczal writes today about both our short-term deficit and our long-term deficit:

Why do we have to worry about the second, long-term deficit in the “two deficits” scenario? My understanding of the neoliberal landscape was that it was to convince the bond market that further stimulus would be temporary, thus allowing a larger short-term stimulus to drive down unemployment without freaking out the bond market....You can doubt that a second stimulus would panic the bond market (I do), but the logic makes sense.

But now, he says, news reports suggest that the Obama administration views long-term deficit reduction simply as a good in itself because it will spur "confidence" in the economy:

This new idea is that making the bond market happy in-and-of-itself will produce prosperity and full employment through increasing confidence. The major drag on the economy isn’t low aggregate demand but confidence. Now the assumption isn’t that we have to keep the bond markets as happy as they were but instead make them much happier, which will then increase investments and spending through this increase in confidence. Hence long-term spending cuts, lots of gimmies to incumbents in supply-side investments and other things powerful interests love but don’t necessarily make demand-based economic sense.

I simply don’t see any evidence of why, or even how, this would work. What are the arguments that confidence is the major check on the economy? I understood the “two deficit” argument, but this new approach is just substituting in the interests of bondholders for the entire economy. If a very-polite version of expansion austerity is guiding the administration’s thought this is even more of a disaster than these stories convey.

At a guess, there are two things going on here. The first is the one Mike talks about: there are a lot of people — Wall Street is full of them — who fundamentally believe in a kind of folk economics in which austerity and discipline are rewarded and profligacy is punished. So if you demonstrate some discipline, businesses will start hiring again because they have confidence in the future.

The second thing is simpler: the political landscape for serious stimulus spending is so grim that no one has the energy to effectively argue against the folk theories. What's the point, after all, when even the most brilliant argument will immediately founder on the reality that Congress just flatly isn't going to pass a stimulus bill? And if that's the case, then why not make the best of a bad situation and argue in public that long-term deficit reduction is good in and of itself? It's better than nothing, after all, and who knows? Maybe it'll work. What's more, politically it's a lot better to cut a deficit deal that makes you look like a leader than it is to barnstorm the country talking up a stimulus and getting nothing for your efforts. That just makes you look like a loser.

I have no idea which of these two dynamics is dominating the decisionmaking at the White House. But I'll bet they both have a strong influence.

Ross Douthat replied yesterday to my post earlier this week on assisted suicide. Among other things, I argued that allowing assisted suicide was unlikely to lead us down a slippery slope in which suicide becomes far more widespread than it is now. Here's Douthat:

Well, yes: The slippery slope that I discussed in the column doesn’t amount to much if you don’t disapprove at all of people deciding to take their own lives....I was making an argument premised on the idea that suicide is generally wrong and helping someone kill themselves is generally a form of murder, and addressing myself primarily to readers who share that premise.

But here's the thing: nowhere in Douthat's original column did he make the case that we should disapprove of suicide per se. I knew perfectly well that he did, of course, because I knew that he's a committed Catholic and Catholic doctrine holds that suicide is a sin (in Dante's telling, it gets you into the 7th circle of hell). But again: this is the problem with trying to make an essentially religious argument in secular form. If you accept a priori that suicide is sinful, then of course assisted suicide is also sinful and anything that potentially encourages even a little bit more of it is sinful too. But if you decide to forego the religious argument, then you need to make a secular case for suicide being unacceptable before you can make a case for assisted suicide being unacceptable. Douthat never did this.

At the end, he tosses things back to me:

For Drum, though, a question: Assuming that the would-be suicide is of sound-enough mind and uncoerced, are there really no secular, non-Judeo-Christian reasons to think that assisting in self-slaughter might be morally problematic? And a follow-up, in the spirit of the daughter test: If Drum had, let’s say, a middle-aged friend confined to a wheelchair by an accident who had spent a few years battling waves of entirely-understandable despair over his condition, and a “merciful” Swiss clinician then prescribed that friend a fatal dose of sodium pentobarbital (after subjecting him to a battery of “common sense” psychological evaluations, of course), would he see no non-religious grounds on which to describe that doctor as a murderer?

For what it's worth, I don't really see suicide as morally problematic. It's obviously tragic, and no one ever wants to see a friend (or anyone else, really) descend to a state in which suicide seems preferable to life. But that's a pragmatic concern, not a moral one. I'd want them to get all the help and support we could offer, but in the end I accept that it might not be enough. So while I'd be heartbroken if a close friend ended up asking for that dose of sodium pentobarbital, I wouldn't have any moral qualms about their decision. Nor about the doctor who prescribed it.1

But that's a personal view. And I'm going to take a guess here: aside from our religious differences, I suspect that one big difference between Douthat and me is that I've suffered from chronic depression nearly my entire life and he hasn't. Luckily, my case is moderate, and I've never felt like drowning myself in a bathtub. Still, I understand keenly what it feels like, which makes it easy for me to have a pretty good sense of what it would feel like if it were more serious. And that deep-seated understanding of what serious, long-lasting, incurable depression probably feels like is part of what drives my policy preferences here. I can actually imagine myself being in a situation where I'd want that prescription available to me, so reasons of self-interest dictate that I'd prefer it to be legally available. If you can't even conceive of such a situation in your own life, you'll probably feel differently.

1With the usual caveats that I assume I don't have to repeat here.

Joe Romm has the right take on yesterday's announcement of a "massive" new oil find in the Gulf of Mexico:

The discovery doesn’t prove we have ‘abundant’ oil reserves, as [House Natural Resources Committee Chair Doc Hastings] claims. It proves the exact opposite, that ‘Drill, Baby, Drill’ can’t solve our problems. Steve Greenlee, president of Exxon Mobil’s exploration business, unintentionally admitted that when he said, “This is one of the largest discoveries in the Gulf of Mexico in the last decade.”

One of the clearest indications that the planet is running out of oil is the fact that discoveries of giant oil fields have slowed so dramatically in the past couple of decades. This new field in the Gulf is supposed to hold 700 million barrels of recoverable oil, which puts it at the low end of the category (a "giant" oil field contains 500 million barrels or more of crude), and these days that counts as a major find. But historically speaking, this is a pipsqueak, and we're finding damn few fields of even this size. The fact that this is so big a deal is a bad sign for the oil industry.

Irvine, California, 8:37 am.

America the Fanciful

Welcome to America:

A large majority of Americans say the U.S. economy would probably suffer serious harm if Congress fails to give the federal government more borrowing authority. But barely half support raising the government’s debt limit, even if lawmakers also sharply cut spending.

Is this just an example of pure fantasy-based thinking? A cri de coeur that's nothing more than an inchoate expression of frustration? A token of tribal solidarity? Proof that many Americans simply have no idea what the debt ceiling really is? Evidence that many Americans think America deserves to be seriously harmed? All of the above? Something else? Somebody needs to do some kind of in-depth interviewing to figure out what's really going on here in the minds of our countrymen.

Ryan Chittum takes a look at two stories about delays in writing new financial regulations, and concludes that the Murdochization of the Wall Street Journal's news pages is proceeding apace:

The Journal’s frame is that Wall Street is upset over the delay of derivatives rules and that it’s causing “uncertainty.”....The Times, though, points out that it’s Wall Street that is delaying the rules.

....This is a prime example of the Times out-Journaling the Journal, giving us the context and background we need to get our arms around what’s really going on. The WSJ misleadingly presents the story almost as if it’s a natural disaster—delays that just happen for no reason or, if you read between the lines, government incompetence....Which just goes to show you, as we’ve seen before with the Journal, that “uncertainty” is a red flag that an argument is almost surely utterly bogus corporate PR.

The Journal's news pages used to be first rate. There's still plenty of good stuff there, but hackery has been advancing steadily ever since Rupert Murdoch bought the paper and started installing his own retainers in top positions. It's pretty sad.