The latest Cookie Of Gratitude goes to Yves Smith, who deconstructs Megan McArdle's strawmen so we don't have to!
Megan McArdle Uses Straw Men to Argue Against Principal Mods
Megan McArdle has a post up discussing why she thinks the benefits of principal mods would be “at best small and mixed”.
The problem with her lengthy discussion is that it is rife with straw men.
Before we get to the nitty gritty, I want address two bits of framing at the top which I found troubling. The first was the title, “Principal Write-Downs Still Popular With Wonks”. The “still” suggests that wonks like it even though some, presumably most, yet to be named others don’t. And singling out “wonks” further implies that (aside from homeowners) they may be its only fans.
That is very misleading. Who is in favor of mods? The only people who under normal circumstances ought to have a vote on this matter, namely, the borrowers and the lenders. First mortgage lenders overwhelmingly favor mods to borrowers with who still have a viable income. Why? Do the math [....]
Already we have two things that Ms. Smith can do and Megan McArdle can't: ask why, and math. Ms. Smith goes on to point out the other strawmen McArdle erected; modification strawmen, availability of mortgages strawmen, 20% reduction strawmen. Go read the whole thing; it's always entertaining to see someone who is not very familiar with McArdle react to her work, and Smith does a very good job of assessing McArdle and her motives.
Meanwhile, back at the post that inspired Ms. Smith's response, McArdle tells us in comments that no matter what, the banks must never suffer for making bad loans, everyone else must pay for their folly and deceit instead. Her slavish devotion to banks appears to have no limit. She would rather see the housing crises drag on forever than see banks lose money.