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Book Review: Jennifer Taub's Other People's Houses (Highly Recommended)

posted by Adam Levitin

I just read Jennifer Taub's outstanding book Other People's Houses, which is a history of mortgage deregulation and the financial crisis. The book makes a nice compliment to Kathleen Engel and Patricia McCoy's fantasticThe Subprime Virus. Both books tell the story of deregulation of the mortgage (and banking) market and the results, but in very different styles. What particularly amazed me about Taub's book was that she structured it around the story of the Nobelmans and American Savings Bank.

The Nobelmans?  American Savings Bank? Who on earth are they? They're the named parties in the 1993 Supreme Court case of Nobelman v. American Savings Bank, which is the decision that prohibited cramdown in Chapter 13 bankruptcy. Taub uses the Nobelmans and American Savings Banks' stories to structure a history of financial deregulation in the 1980s and how it produced (or really deepened) the S&L crisis and laid the groundwork for the housing bubble in the 2000s.

One of the problems of telling the story of the housing bubble is that it isn't a story of any individual, but a story affecting millions. The result is a sort of reverse Anna Karenina problem: it is hard to find a human story that has anything to distinguish it from so many other sad stories. Moreover, the problem a scholar faces is that the plural of anecdote is not data. Yet by focusing on the story of the Nobelmans, Taub has found that one story of an individual family that tells the story of the S&L crisis. There are not, after all, many consumers whose $23,500 condo ends up the subject of a Supreme Court decision. Moreover, American Savings Bank wasn't just some random S&L. It was the successor to American Savings & Loan, the largest S&L failure until WaMu, which itself purchased American Savings Bank. So there is a thread running from the Nobelman case directly up to the 2008 financial crisis. As someone who has written on the Nobelman case (here and here) and the connections of 1980s S&L shennanigan to the financial crisis, this is a structure that made me kvell.

Taub has done great deal of research for this book. She has run down all of the details of the Nobelmans case, which turns out to tell a somewhat different story than one gets from the Supreme Court's decision. (E.g., who knew that American Savings Bank was not the original lender and nor was it the servicer or that the loan was in fact secured by more than just the debtors' principal residence, making application of section 1322(b)(2) dubious in the first place.) Taub also introduces a whole cotorie of colorful characters from the 1980s real estate market, again involving impressive sleuthing, including tracing down the ultimate controlling party of the entity that bought the Nobelmans condo in foreclosure. The connection between the Nobelmans and WaMu was pretty neat too. And Taub rightly frames Nobelman v. American Savings Bank for what it effectively was--a huge bailout of the banking system by the Supreme Court, which seems not to have had a clue about what it was doing: the unanimous majority never discusses anything other than statutory interpretation, while Justice Steven's additional concurrence assumed, without much analysis, that allowing cramdown would have a major effect on housing prices.

Taub does an excellent job retelling and reframing a reasonably well-known story to make it fresh and interesting, and makes a strong case tying the 2008 crisis to the 1980s deregulation. My two gripes with the book are that Taub never really explains why the seeds planted in the 1980s bore their poisonous fruit when they did. Being able to explain why 2008 happened in 2008 would make the argument much stronger. Put another way, why didn't we have a housing bubble in, say, 1994?

My other gripe is that Taub implies that WaMu picked up the option-ARM from American Savings Bank. I'm not sure that's correct. I haven't been able to pinpoint the invention of the option-ARM--I've seen an ad for a COFI Option Arm from 1994, but the product didn't really take off until after 2003--no one even has statistics on its use from earlier years because it was such a niche product. I haven't seen any evidence that American Savings Bank was offering payment-option ARMs prior to its acquisition by WaMu. But that's all a detail. All in all, this is a very good book on the housing bubble.

Highly recommended.

Comments

Waiting on the story focusing on Herb and Marion Sandler. Much more interesting origins of subprime swindlers.

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