Back! And looking for questions...

Hi everyone! After a break from politics and book events, I'm back to talk about the book and answer your questions on everything that's happened in the last few months -- and I'll post some more excerpts in the coming weeks.

(Speaking of the book, if you don't have it yet, here's your chance!)

A few things that have been on my mind lately...

What happened to the economy? Some of the causes of the collapse were visible a year ago when I was finishing the book; some of them came almost out of nowhere.

What do you think about the bailout and the stimulus? Are we doing the right thing? What should we do? If you could give President Obama one suggestion, what would it be?

Is it baseball yet? I can't wait for Opening Day. And if Lowell and Papi are healthy this year, then the Sox are going to be good. Like really good. I hope.

So what's on your mind? Email me at questions@jessamynconrad.com!

Excerpt - The Subprime Mortgage Crisis

Starting today, I'll be posting a series of entries with excerpts from the book that relevant to current headlines. And remember, if you have anything you're particularly curious about, send in a question to jessamynconradpolitics@gmail.com.

Our first topic will be the one on everyone's minds -- the subprime mortgage crisis, which is covered in Chapter 3: The Economy. I've also added a bit of material from recent weeks, as the crisis has become much worse since the book went to press in June.

In 2007 a slowdown in the once-fiery housing market turned talking heads, and the words "subprime mortgage crisis" fell from pundits' lips like so many economic pie crumbs. Mortgages are loans for real estate that take the property itself for collateral (the asset used to guarantee the loan). Subprime loans cost more than normal loans because they are particularly risky, or more likely to go into foreclosure. Foreclosures happen when people cannot pay their mortgage and the property they have bought with the loan is taken by the lending agency. Banks lost billions on bad loans as families across the country fell into foreclosure. Though the media generally blamed a cooling market for the troubles, the mortgage crisis had complex -- and instructive -- roots. In fact, understanding just what happened gets you to the heart of America's monetary policy.

It all started when the government decided to deregulate the banking industry. Deregulation occurred over a period of fifteen years, beginning in 1980. Before then, strict laws controlled how banks could market mortgages, what interest rates they could charge, and even under what criteria people could take out a loan. People who couldn't afford mortgages weren't given them; this led to a basic understanding that when you applied for a mortgage, a lender would give you only an amount you were likely able to repay. That expectation proved disastrous for many Americans.

To entice people into taking out mortgages, many lenders offered teaser rates, very low interest mortgages that required either no down payment or a very small one, usually attached to a variable rate mortgage. Variable rate mortgages [or adjustable rate mortgages, or ARMs] are loans whose interest rates can change, while normal mortgages are fixed rate loans whose rate doesn't change. Variable rate mortgages seem attractive when interest rates are low, but they are risky because if interest rates go up, loan payments can rise significantly overnight. If you have no financial cushion, that can be devastating -- and people who bought these loans were by definition subprime borrowers, people with less than sterling credit ratings who didn't have extra money.

Variable rate mortgages were popular when the real estate market was very hot and people were buying property to make a quick buck by flipping, meaning that they only held the variable rate mortgage for a short time, thus minimizing their financial risk. But if there's a downturn in the housing market and your house doesn't sell and you have a variable rate mortgage with an increasing rate, you could have a big problem. In addition to dealing with higher payments from rising interest rates, if you put down no or only a little money, you aren't actually paying down the debt on the house; you're mostly paying interest. If you put down $100,000 on a $500,000 house, you already own 20 percent of it. If you put down nothing, you don't own anything, and your mortgage payments will mostly be interest on the loan -- you'll be buying the house at a very slow rate.

Other kinds of deregulation also spurred the growth in subprime mortgages. Key laws passed in 1986 and 1999 allowed for what's called increased securitization. This is pretty complicated, but the upshot is that the new laws created incentives for the finance industry to invest in mortgages by betting on the risk of the loans. These new financial tools were so complex, however, that investors couldn't accurately assess the risks of the investments they were buying.

Unfortunately, they were ultimately betting on people's ability to pay back questionable loans. When increasing numbers of Americans couldn't make their payments, the value of these securities dropped precipitously, sending many large and imprudent banks into a tailspin. A more serious crisis was averted when a big Main Street bank, Bank of America, bought a big Wall Street mortgage lender, Countrywide, bailing it out from near ruin. [But recent events have deepened the crisis, as Wall Street fixtures Lehman Brothers and Bear Stearns collapsed under the weight of the bad debt; the federal government stepped in to take over American International Group; and the giant Main Street bank Washington Mutual fell -- the largest bank failure in American history.] So there were really two pieces to the mortgage crisis: one, there were the people who took out loans they couldn't afford and the lenders who pushed and sold those loans; and two, there were banks investing in those loans in new and risky ways. Both were products of deregulation.

Many Democrats feel that the lending industry hoodwinked gullible consumers into taking out mortgages they couldn't afford. Pro-business Republicans and some Democrats stress personal responsibility and point out that if people make bad financial decisions, it's their own fault. They weren't forced to take out risky loans; they did it of their own free will. Most Democrats respond that it's only natural that low-income people wanted to buy a house -- a staple American dream -- the second it looked feasible. They argue that many just assumed a bank would not extend a risky mortgage. Before deregulation, that was a reasonable assumption.

Both Democrats and Republicans are right. Of course people want to buy a house, of course many are ignorant when it comes to money, and of course it's fundamentally our own responsibility to read the fine print. The real question is who should assume responsibility now that the housing market has failed on the weakness of bad loans. Should we force the lending agencies to be less harsh? Should we freeze interest rates so fewer people lose property? Are the other effects of freezing interest rates too detrimental to the economy? Should we let banks operate independently?

Copyright © 2008 by Jessamyn Conrad

Want to read more? Buy the book today!

Boston event Friday -- and full tour schedule

On Friday, I'll be doing the first of a slew of events in a very busy October, with the first of several events in the Boston area. Come by, bring your friends, and be ready with your questions on the issues in the campaign -- or on the baseball playoffs. (Go Sox! And no, that's not a political pander. Unlike some candidates, I'm not going to pretend to like your team when I come to your town.)

Friday, October 3, 2:30-3:30 pm
Tufts University Bookstore
40 Talbot Avenue, Medford, MA (view map)

And the rest of the schedule:

10/8 -- Boston, MA -- 6 pm @ Hampshire House, 84 Beacon St (map)
10/14 -- New York, NY -- 7 pm @ Book Culture, 536 W 112th St (map)
10/15 -- Washington, DC -- 1 pm @ American University Bookstore
10/16 -- Baltimore, MD -- 7 pm @ Johns Hopkins University, location TBA
10/21 -- Boston, MA -- 7 pm @ Barnes & Noble / BU Bookstore, 660 Beacon St (map)
10/22 -- Boston, MA -- noon @ Snell Library, Northeastern University

Today's stop: DC

After months and months of researching and writing about what happens in Washington, it's time to tell Washingtonians all about it.

Borders Bookstore
18th and L Streets NW
TODAY -- Wednesday, September 17
6:30 to 7:30 pm

I'll be giving a book talk at around 6:30, followed by Q&A and signing copies -- see you there.

Who has questions?

It's time for another question of the week.

The presidential campaign is now in full swing -- plus there are hotly contested House and Senate and gubernatorial races all over the country. As the candidates debate the issues, what would you like to know more about? Any confusing jargon? Need some historical context? Want to know the facts behind the campaign promises and attack ads?

Send me your questions at jessamynconradpolitics@gmail.com by midnight Sunday evening, and I'll choose one to answer by mid-week.

Coming soon: Full tour schedule (including stops in Baltimore, Boston, New York, DC, and the Bay Area, just for starters).

Live from St. Paul

I'm here in beautiful St. Paul, at Garrison Keillor's bookstore here, Common Good Books. It's downstairs from Nina's Coffee Cafe, at the corner of Western and Selby in Cathedral Hill. Then I'll be at the University of Minnesota later today, at the main bookstore from 4 to 5. If you're here for the RNC, or you live in the Twin Cities and want to get a book signed, come on by!

Next stop: Minneapolis

So after visiting my hometown in North Dakota, I'm on my way to Minneapolis, where the Republican National Convention begins today. I have two events confirmed -- one at Common Good Books, Garrison Keillor's bookstore in St. Paul, and the other at the University of Minnesota -- so come on out!

Tuesday, September 2 -- 12 noon to 1 pm
Common Good Books
165 Western Avenue N.
Saint Paul, Minnesota

Tuesday, September 2 -- 4 pm to 5 pm
University of Minnesota Bookstore
Coffman Memorial Union
300 Washington Avenue SE
Minneapolis, Minnesota
(** note that this is in Minneapolis; it was incorrectly posted as St. Paul before)

On to Denver!

So for everyone who lives in the Denver area -- or anyone coming to Denver this week for the Democratic National Convention -- I'll be there to talk about the book and sign copies. Here's the info for Tuesday. I'll post the full tour schedule soon and update it as more dates are scheduled.

Tattered Cover Bookstore - lower downtown location
2526 E. Colfax Ave., Denver, Colorado [map]
Tuesday, August 26, 2008
Noon to 2 pm
See the event page on Facebook here

Answer of the Week #1

Time for our first answer of the week. First, the winning question (and huge thanks to everyone who wrote in!):

Q: Do you think it's hypocritical of me to place a Libertarian Party bumper sticker on my car if I'm not a Libertarian? I put the sticker on my car as a form of protest against the two-party system.
-- Barry, Powder Springs, GA

A: I don't think it's hypocritical, really. Though I should admit that I have never found "hypocritical" to be a very useful label -- I think we all adopt conflicting viewpoints sometimes. I usually have at least two minds about most things, including what to eat for dinner.

But to speak to the political point, libertarianism isn't explicitly Republican or Democratic. So if you identify with a major party but think we should have more choice -- and you have libertarian leanings -- then I don't think you aren't betraying your identity as a Republican or Democrat by also identifying as a libertarian. You can be both: Because we do only have two major parties, those groups are broadly construed. Libertarians are both Republicans and Democrats, and Republicans and Democrats both often adopt libertarian viewpoints.

A deeper issue here is the conflict between libertarianism as an ideology and as a political party. The party translates the ideology into practice -- it places a higher value on certain politics and policies as opposed to others, and those priorities can shift over time. For example, libertarianism, the ideology, advocates for no government interference across the board (except for defense of property), the Libertarian Party has traditionally emphasized less government interference in the economy, although it has increasingly advocated for less government in the bedroom, as well as for drug legalization. Parties are essentially filter mechanisms for ideologies --they weight different aspects of the ideology differently and choose some to concentrate on. So the question of how the Libertarian Party interprets the ideology is a very interesting one. It's an issue every party faces, whether big or small.

Now, I would say that if you are really annoyed by the two-party system, you better take up yoga or drink more, because it's probably not going anywhere. American elections are winner-take-all (or first-past-the-post); so even if a third party were to win 20% of the vote around the country, they would probably not win 20% of the seats in Congress but only a handful, if any. The history of smaller parties in the U.S. is one of short-lived movements and occasional regional impact. Their most important roles have been (a) playing the spoiler, tilting the election to one of the major parties (some argue that this happened with Perot in '92 and Nader in '00), (b) being absorbed by one of the major parties, and (c) highlighting issues that the major parties were neglecting (such as Perot with the budget deficit). So supporting a third party can have some indirect impact.

What you might be really really annoyed with, though, is the ways in which power is concentrated and maintained through the two-party system. And if that's the case, I have two suggestions: one, check out groups that oppose gerrymandering, which is undemocratic and which entrenches and concentrates power; and two, take a look at efforts like Instant Runoff Voting, Range Voting, and Ranked Voting. These proposed reforms could benefit smaller parties, and that might broaden the political spectrum quite a bit, especially in the House of Representatives.

So thanks to Barry for his great question. And if you have something you've been wondering about, send me an email! I'm at jessamynconradpolitics@gmail.com, or you can post something on my pages at Facebook or MySpace.

Slate's John Dickerson Gives a Thumbs-Up

Today, Slate's podcast, Political Gabfest, discussed the book in its "cocktail chatter" segment, and their blog describes it as "a new book that explains all the policy decisions the next president will face." Political correspondent John Dickerson praised the book as a great way to learn about all the issues for anyone who wants to engage in this year's election. Check it out here.