UPDATE: IF YOU FOLLOW THIS LINK TO FORBES.COM COVERAGE OF THE FORECLOSURE CRISIS AND CLICK ON THE HIGHLIGHTED WORD "FORECLOSURE" YOU'LL FIND A WEALTH OF MATERIAL, INCLUDING VIDEOS, ON THE SUBJECT.
See, for instance, this great post on "bailing out" homeowners at the Calculated Risk Blog here (found by clicking on the Lingo bubble on the Forbes.com site above.
In this morning's Los Angeles Times, staff writer Maura Reynolds explains how -- and why -- the Senate has reached a deal on foreclosure legislation. "Key senators" writes Ms. Reynolds,
announced Monday a bipartisan agreement on the broad elements of a plan to avoid foreclosures and speed the refinancing of mortgages for roughly 500,000 troubled homeowners without taxpayers footing the bill.
Political deal making showcases high-level bargaining skills at the intersection of interest- value- and rights-based negotiation paradigms. No one files lawsuits against their Senators (well, no sane person). But in the midst of an economic crisis, political representatives might just as well be defendants. As Reynolds explains, the forclosure legislation "deal" reached in the U.S. Senate reflects the election-year pressure that lawmakers feel to find common ground on one of the most pressing issues facing the country.
Some theorists define conflict as a "crisis in human interaction" which the parties need help to overcome for the purpose of restoring constructive interaction.
Transformative mediation theorists and our little "d" democracy assumes that people have the capacity to solve their own conflicts over scarce resources, rights, interests and values. (See MEDIATION STYLES AND TECHNIQUES prepared by the American Bar Association, Public Contract Law Section; Dispute Resolution Section; Center for Continuing Legal Education; and Interagency ADR Working Group; Contracts and Procurement Section at the Arnold & Porter Paul Porter Conference Center).
A stakeholder in a conflict is anyone who might be positively or negatively impacted by the crisis and its potential resolution. In this case, the L.A. Times identifies the entire economy as a "stakeholder." As Ms. Reynolds explains, the "housing collapse"
has inflicted pain on thousands of families, dealt the economy a major blow and ignited a fierce controversy over what -- if anything -- the government should do about it.
The stakeholders to whom elected representatives must answer are, of course, those who elect them -- voters and taxpayers -- as well as those corporate and individual contributors who fill their election coffers. When selling a public good, however, it is best to acknowledge your allegiance to "the people." As one Senator explained:
My primary consideration during negotiations on this package has been to protect the American taxpayer, and I believe we've made significant progress toward that goal.
National Resolution to Public Problems Must Reflect the Voters' Interests and Values
Unlike a lawsuit, where the parties are fighting over existing (or hoped for) rights and obligations, in economic, social or political crises the "fight" is not about "rights" but interests and values. The right to declare bankruptcy aside, no one has a legal right to be "bailed out" of a financial crisis. Nevertheless, a bail out may be necessary if elected officials are to serve the "interests" of their constituents according to those voters' "values."
As Reynolds explains, the lead Republican on the Senate Banking Committee, Sen. Richard C. Shelby, suggested that consensus among law makers could not be achieved if the proposed solution to the foreclosure crisis were seen as a "bail out" of "speculators" or of "borrowers and lenders who made bad decisions out of carelessness or greed." These are the "value" concerns that are part and parcel of any potential resolution of a community-wide conflict.
Because we perceive money to be a scarce resource, we presume that its delivery to Interest Group A will deprive Interest Group B of funds necessary to serve Group B's needs or desires. This is a "zero sum" view of economics. For individuals and many businesses, however, this is often not only perceived reality, but the actual fact of the matter.
If mom and dad bail Billy out of jail for drunk driving, they may not have sufficient resources to pay his brother's room and board at Ivy League U. Not wishing to "reward" bad behavior (a "value" metric) may be only part of the calculus, however. If the family is capable of satisfying both brothers' interests, they may or may not decide to be guided by their "values." They could act out of helpless parental love or simply compassion. If the parents do not have sufficient resources to satisfy both brothers' needs at the same time, their decision about who to benefit will almost always reflect family values (little "F" little "V").
How national problems should be solved within federal budgetary constraints is not so different from the family drama hypothesized above.
The foreclosure crisis is not only about American values such as independence, thriftiness, caution, and hard work. It is also about stakeholder interests. As Reynolds reports:
Some Republicans have supported other versions of the legislation, citing the severity of the housing crisis and the escalating number of foreclosures in some regions of the country, including parts of California. They argued that the foreclosure crisis would damage entire communities and pull the economy toward recession.
If larger societal interests -- like the economy itself /** -- are at risk, a "bail out" plan that "rewards" even the careless and greedy may be palatable to voters, particularly when, as Reynolds reports, "at the luxury end, home prices are falling." In other words -- if this crisis is not addressed by our elected representatives (who are also stakeholders in this crisis) not only voters, but contributors to political campaigns might retaliate against them.
Positively "Framing" the Proposed Legislative Solution to Meet Both Interests and Values
In acknowledging the need for action, Senator Shelby positively "frames" the crisis as one affecting "struggling homeowners" who "should" be assisted so long as "American tax payers" don't have to foot the bill. Others appeal to market and voter fears that the foreclosure crisis might "pull the economy toward recession" (if it has not already arrived there). In all events, a majority of stakeholders in any democracy must feel satisfied that legislation addresses both their needs and their fears.
The Proposed "Deal"
The proposed Senate "deal" to aid borrowers, lenders, and "the economy" is described by the Times as follows:
The Senate plan announced by Shelby and Banking Committee Chairman Sen. Christopher J. Dodd (D-Conn.) is similar to the House-passed bill in that the centerpiece of each is an expansion of government mortgage insurance. Under both proposals, a borrower facing foreclosure could refinance into a government-guaranteed mortgage under certain conditions, including that the home is the owner's primary residence and that the holder of the existing mortgage accepts 85% of the home's current appraised value as payment in full.
The House bill calls for using about $1.7 billion from the federal budget to set up the program, which would be administered by the Federal Housing Administration.
Under the Senate deal, the start-up funds would come instead from an affordable-housing fund capitalized by mortgage giants Fannie Mae and Freddie Mac, which were created by the government but are owned by public stockholders.
This plan satisfies American "self-help" values by requiring borrowers to refinance. It attempts to exclude "speculators" from the benefit created by requiring recipients of the government-guaranteed mortgages to affirm that the home is their primary residence. And it "punishes" imprudent lenders by requiring them to accept 85% of the home's current appraised value as payment in full. Finally, whereas the House would spend $1.7 billion in federal funds, the Senate hopes to tap the resources of Fannie Mae and Freddie-Mac, government created but privately owned lenders.
Selling the Deal
Whatever deal is crafted to address a national financial crisis or to settle a piece of commercial litigation, it must be sold to all stakeholders. Here's a classic "win-win" pitch based on interests and values.
"This legislation is good news for both the markets and homeowners," [Senator] Dodd said. "The bill addresses the root of our current economic problems -- the foreclosure crisis -- by creating a voluntary initiative at no estimated cost to taxpayers, which will help Americans keep their homes." Dodd told reporters the measure would speed the correction of housing prices to return stability to the market as soon as possible and prevent further damage to the broader economy. "Obviously, we want to keep as many people as possible in their homes. But the second goal, as important as the first, is to get to the floor" of the housing correction, Dodd said in a conference call. "Until we get to the floor, none of this is going to get better." "We have a lot of confidence that this is what the market is waiting for," Dodd said.
Deconstructing consensus-building in the political arena should help anyone who is making an effort to settle commercial litigation -- or simply a family dispute over the deployment of family resources.
We thank Times staff writer Maura Reynolds for the depth and breadth of her reporting on this issue.
For an analysis of the future of the Senate proposal, check out the Housing Chronicles Blog post Will President Bush Sign the Housing bill? here. Housing Chronicles is a fellow Forbes Business and Financial Network blogger.
**/ For another look at what we mean when we use the term "economy" see this month's Harpers' article by Jonathan Rowe, Our Phony Economy.