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ZorbaTHut  1yr ago (text post)   31256 thread views

Culture War Roundup for the week of October 17, 2022

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While browsing reddit a few days ago I forgot that I wasn't on TheMotte and tried to make a hypothesis post. This led to much screaming and crying and rending of clothes. So I decided to repost it here to see what people think. Am I crazy or am I right?

  • I predict that the housing market will experience a fall of at least Edited to "about" 20% within the next 6 months. I have about a 90% certainty in this.

Reasoning: The current housing market as it stands is a mirage, not an indicator of growth. The market should have crashed in 2020, but it didn't because COVID. All of a sudden millions of people had the flexibility to move away from their place of employment because of work from home. Fully 60% of the home-buying surge was fueled by this trend according to the Fed, whose numbers I have no reason to mistrust. This sudden surge in home-buying has largely abated. According to RedFin, mortgage rates are their highest since 2002, searches for "homes for sale" are down 35% YoY, the Homebuyer Demand Index is down 25% YoY, and mortgage purchase applications are down 39% YoY. The market is cooling off. I believe the coming crash will be around 20% because historically that's a safe bet. The late-90s crash saw a drop in home prices of 14%, the 08 crash saw a drop of 27%, I think this crash will be somewhere in-between, hence 20%.

  • I predict that there will be a recession before June 2023, and have a 90% certainty in this prediction.

We are either in a recession right now, in which case I'm right, or we're about to be, in which case I'm right. Popular opinion defines a recession as two consecutive quarters of negative GDP growth. If that is the case the recession has already started. The National Bureau of Economic Research defines a recession as a "significant decline in economic activity that is spread across the economy and lasts more than a few months". So let's look at a few indicators. Ignoring inflation for the moment, retail and food services sales, total, peaked in May and have been on a slow but definite decline since. The Conference Board Leading Economic Index is down 2.7% since February. The S&P 500 is down 22% YTD. Oh, and almost every single CEO in the country believes there's gonna be a recession.

  • I predict that this recession will not be "mild", but nor will it be as bad as 2008. Somewhere between the Dotcom bust and 08 is my prediction, which I have about a 70% confidence in.

  • I predict unemployment will rise by more than 1%, but less than 5%. Somewhere in-between, with about 50% confidence.

These two predictions are functioning from the same basic premise. I'm pulling all my historical numbers from here. The 2008 Recession saw Real GDP fall 8.5%, unemployment reach 10% (a rise of about 6%), and the S&P500 drop 57%. The DotCom crash saw Real GDP fall by 1.6%, unemployment reach 5.9% (a rise of about 2%), and the S&P500 drop 62% (S&P drop pulled from here). I believe that the coming recession (if it happens - see above) will not be as bad as 08 because many of the co-factors that made 2008 so bad do not exist here, but that it'll probably be worse than the Dotcom crash because the Dotcom crash was largely caused by over-speculation on internet companies (hence "dotcom" crash) and low interest rates. We don't have low-interest rates anymore, but I think co-factors here (namely high inflation) will mean this one is going to be worse. My unemployment prediction is similarly predicated on this recession being somewhere between Dotcom and 08 in severity. If we're somewhere between those two numbers (2% and 6%) then a guestimate of between 1 and 5% is reasonable.

  • I predict that legal hiring will probably recover within 12 months of the recession beginning, with again 50% confidence. Please note that this depends on the specific legal market in which you are trying to enter. Bankruptcy and litigation practices will increase hiring during the recession, because more people are going bankrupt and suing each other. Real estate, corporate, IP EDIT: specifically M&A (bankruptcy could be considered part of the "corporate" umbrella term, and I put IP here by mistake), and tech practice groups will have reduced or frozen hiring.

Law firms have taken steps since 2008 to try and avoid mass layoffs. With that in mind, the legal practice has only just recovered from 2008 in terms of raw employment numbers. Recently firms have shifted their recruiting approach. To quote from the Reuters article:

There has been a slowdown in law firm hiring for capital markets and mergers and acquisitions attorneys . . . the legal recruitment leaders said law firms are likely to be hesitant about doing mass layoffs as some did during the Great Recession and may opt instead for measures such as cutting pay.

Some practice groups are never busier than during a recession. Bankruptcies surged by just over 30% during the 2008 crash, and firms are preparing for this business to pick up. Similarly litigation is a counter cyclical practice that picks up during periods of a bad economy. It makes sense when you think about it. When the economy is good, people don't want to sue. When times are bad, they do. On the other hand, M&A tends to cool off in a recession.

I was accused of "LARPing as an economist" and "pulling these numbers out of my ass", so I thought I'd post them here for the Motte to give me a more rigorous examination.

Tangential development that isn’t yet large enough to be a systemic problem but is small-scale horrifying:

Since the refi boom is over and sales are slowing, originations departments are looking for ways to lower costs for consumers, so they can write more loans. One old, bad idea being kicked around again is attorney title opinion letters. And Fannie Mae has begun accepting them in limited amounts.

The attorney title opinion is a written letter from a lawyer that says based on the public records they were able to review, the title on the property you are buying is clear. It’s a cheaper alternative to title insurance, but what it isn’t, is title insurance.

Now, title insurers make good money. As an industry, they bring in billions in premiums versus paying out hundreds of millions in claims. But they also protect consumers against error and fraud.

Most homebuyers would surely love to save several hundred dollars in closing costs. But the ones that get burned and wind up in contested law suits are going to be out five figures in legal costs. Uncontested title resolutions run $1,500 to $5,000.

Most obvious application for Blockchain combination of NFTs and Cryptocurrency to eliminate the title insurance industry, n'est pas? Assign an irrevocable NFT to the ownership of the property, create an automatically executing contract upon the receipt of the correct amount of bitcoin, eliminate trust issues in real estate transactions.

Unfortunately actually setting up and maintaining that probably costs as much as the current title insurance scheme anyway.

Candidly, my knowledge of the housing industry outstrips my knowledge of cryptocurrency.

But, my first thought is that, no, I do not want decentralized titles. I explicitly want centralized titles. I want a lawyer, and a county clerk, and a judge, all talking about who owns what for most people will be the most expensive purchase(s) of their lives, if there is any sort dispute. I do not want ownership of my home tied to password security. I want wet signatures, and I’m bringing a blue pen, so I know if a document presented at a later date has been so much as photocopied.

But, my first thought is that, no, I do not want decentralized titles. I explicitly want centralized titles.

Right now titles aren't really that centralized, which is the whole purpose of title insurance. What I'm proposing is centralizing them.

What I'm proposing is centralizing them.

Then why not just have the state run a database instead of using the blockchain? At least a database doesn't come with gas fees, and errors can be corrected via legal process.

This is called Torrens title, and it is the norm in the world outside the US. The goals of the system are the mirror principle (the register reflects the title, so that anyone who knows they are dealing with the registered proprietor can buy the property without needing to investigate the title or pay for insurance), the curtain principle (anything not needed to deliver the mirror principle, such as the identity of the beneficiaries if the registered owner is a trust, is off the register), and the indemnity principle (anyone who loses money due to the registrar's error, such as allowing a forged deed to be registered, is indemnified at public expense). The details of how this is achieved varies subtly between jurisdictions, but in all case the key is that a State-maintained centralised register is inherently as trustworthy as the underlying State-enforced land title (so blockchain adds no value).

Googling suggests a widespread lack of curiosity as to why the US has not adopted Torrens titles. The best good reason I found is that land law is a State function, and the States cannot impose a register-it-or-lose-it rule on the Feds as applied to e.g. Federal tax liens, meaning that a State-issued Torrens title could not be a true mirror. The likely bad reason is that title insurers have successfully lobbied against the change.

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