This House Is Not a Home

A tremendously hot August that flirted with record highs is almost history and with it the tendentious hope some had for a Summer of Recovery. Au revoir. Boasts that emanated from the White House of an imminent reversal of America’s dismal economic predicament (and Democratic political fortunes) were so predictably wide of the mark that the reluctant acknowledgment of such is almost uncontroversial. One must understand that when a president is this out of his depth, what other recourse is there besides breaking out the Blue Goose to disseminate false hope?

A woeful chasm in this country persists and it sets the Best and the Brightest of our venerable institutions diametrically apart from the economic reality on the ground. This Recovery Summer that decidedly wasn’t brings to mind the “green shoots” we heard a bit about in the spring of 2009. Or perhaps more notoriously, reminds us of how wrong the establishment was in its belated discovery of economic recession 2½ years ago. If their epic wrongness continues unabated, words like “expert” may literally have to undergo semantic change. “A person who commands considerable status despite lack of foresight, special knowledge or self-awareness,” is what Webster’s Fourth may read at the turn of the next century.

Optimistic talk of liberal policy wonks—who else is there left to defend this administration?—is given the lie to by NPR a day ago.

Articles like these make pearl-clutchers out of us all:

[I]n light of the financial crisis and Fannie and Freddie's near-collapse, policy leaders are also rethinking the government's role — and many Americans are starting to question whether homeownership is the only path to the American Dream.

Fannie and Freddie function by buying, bundling and then stamping a government guarantee on mortgages. Then they sell them to investors. It keeps the banks happy because it keeps capital flowing, and it keeps consumers happy because it makes low, fixed-rate mortgages possible.

In a related occurrence, Rep. Barney Frank, chairman of the Financial Services Committee, finally lent his lisp to an astonishing truism: “Not everybody can or should be a homeowner,” the congressman informs us, summoning the authority of a public official oblivious to how tragically late he is.

Hope from NPR continues:

"The world we live in today is not quite the world that existed in 1950," he noted. "The nature of households and the rate at which they dissolve and reform, the nature of work and its transient nature across geographies are all things that suggest that maybe, just possibly, a middle-class American shouldn't stake themselves to an illiquid, very large, concentrated, leveraged asset —- that is to say, a house."

Alyssa Katz, author of Our Lot: How Real Estate Came To Own Us, also thinks America needs to reconsider the American Dream.

"Homeowenership has gone from being pretty much an unmitigated good — something that would provide stability — and instead has thrown a huge cloud of doubt over the value of homeownership for a lot of people."

This particular young person doesn’t find much to disagree with here. These days it’s nearly impossible to miss the occasional forecast of a Lost Generation and its resultant new normal: “You will be poorer than your parents and unemployment will remain sorta high for the foreseeable future. God bless and better luck next time.” Assuming it provides a quantum of solace, at least we finally achieved universal health care

Momentous events like the Little Depression (and the attendant housing crisis), or the Deepwater Horizon fuckup, have a way of bursting onto the scene, seizing our otherwise amnesiac minds, and laying waste to the status quo. And yet we still are unable to really anticipate all the long effects of any of these events.

But we can try. Deemphasizing homeownership is an apt example of wisely trying to anticipate some of the Little Depression’s long effects. Coupled with rapidly-changing societal norms, this badass depression will probably make adventurous vagabonds out of my generation. For lack of stability, most of us will have had multiple careers in sundry parts of the country, and the world, before finally shuffling off this mortal coil. (Though some of us will live forever.)

There are also valuable policy lessons to extract from all of this. I’m speaking specifically to the eternal struggle between liberals—compassionate pussies we are—and poverty and despair. The New York Times ran a story over a decade ago that helpfully immortalized the roots of the government’s most recent and consistent approach to homeownership before the crash; particularly for minorities.

September 30, 1999:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action… will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

Peter Wallison, Reagan era lawyer, acted as the loser Cassandra in all of this: “[T]his is another thrift industry growing up around us. … If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”  His prescient prediction was solicited and summarily ignored, apparently. Wallison anticipated a federally-induced “thrift industry” on the model of the savings and loan mess of the ‘80s. A decade after the article appeared, Wallison was none too subdued and impressive in excoriating the Bush and Obama administrations, respectively, in the pages of the unfortunate Wall Street Journal on this very same and related topics. Like Krauthammer, he’s a bright guy who’s very good at maligning some of the excesses of “liberalism.” He proceeds to run clear off the rails, however, when he posits his conservative ideology as the solution.

In truth, government underwriting of much of the subprime housing market was always a non sequitur solution to economic inequality. Instead of concerning ourselves with the hollow carapace of America’s manufacturing base and such—like Glass–Steagall, these are supposedly passé remnants of the New Deal and Great Society eras with no value today—what New Democrats, or whatever they’re called during this current presidency, do is devise big programs that are resigned to the root causes of inequality. And they coincidentally funnel billions of dollars to corporations and Wall Street (left-wing corporatism, or crony-capitalism, if you want). Policies like these are what permit Democrats to remain viable. Otherwise, I suppose, all the campaign contributions from wealthy donors would go to the GOP.

Apropos Fannie Mae and Freddie Mac, Barney Frank has found religion again: “I think they should be abolished. The only question is what do you put in their place. This is a situation where given the importance they had come to play in housing, you can't tear down the old jail until you build a new one. And that's a process that we've started.”

It’s tempting to be encouraged by this until we remember the modus operandi of the Barneys of the world. Wall Street liberals are always eloquent and commonsensical—compared to the opposition—in diagnosing the problem.

Now we await the sellout.

Tags: housing crisis, Little Depression, Great Recession, Barney Frank, Peter Wallison, Democratic Party (all tags)

Comments

2 Comments

RE: This House Is Not a Home

1) there have been more forclosures among the "rich" than in the poor, subprime market. This is primarily because the more well-off have just been walking away from their investment properties that are underwater.

http://www.nytimes.com/2010/07/09/business/economy/09rich.html?_r=3&hp

2) The problem wouldn't have been nearly as bad if banks hadn't leveraged mortgages 30X over.

3) the tax code gives lots of breaks for home ownership. Most tax breaks are unavailable to those without lots of money and/or their own businesses. The mortgage deduction was the one were lot of people could maybe partake of it.

4) there's no real reason in theory that more people can't or shouldn't own homes. People just shouldn't own homes they can't afford. If we could better encorage more affordable housing, more people could own homes without being out of their league financially.

5) society benefits from the stability of home ownership. People take better care of their homes and tend to be much more involved with their communities if they are home owners. To the extent that we can encorage homeownership in a way that isn't too risky, we should. Lets start with not letting financial institutions break up the mortgages into tiny parts and leverage it so many times over.

by jeopardy 2010-08-22 11:15PM | 2 recs
RE: This House Is Not a Home

1) Absolutely, this is true. I remember watching a Bloggingheads ep with Matt Yglesias--I think?--and someone else and he mentioned something called the "affluent poor." To be sure, we're all on a road to economic neo-feudalism, but my particular focus was poor, working-, and middle-class Americans. 

2) That's what brought down the economy. The right-wingers like to make it seem as if the entire economy was wrecked solely because of the subprime mess. Of course not. The government--through two, bipartisan administrations--aggressively promoted the subprime market and Wall Street made a killing off them. That's essentially what I meant about Wall Street liberals instituting policies under the guise of helping the disadvantaged while basically funneling hundreds of billions of dollars to corporations and Wall Street. And once the program fails--like the subprime mess--the people who were supposed to be getting help are left holding the bag.

4) And that's why we need reform. The problem with Fannie Mae and Freddie Mac was mission creep. But just because Barney Frank--ugh!--and I want to do away with them doesn't necessarily mean we're not going to still facilitate affordable housing in this country (I'm not, anyway). The ultimate point is that these Democrats and Republicans in Washington have been parading the sharp rise in homeownership among minorities as if the battle is entirely, or nearly, won because of these statistics. That's not the case. 

by Jack Landsman 2010-08-23 07:01PM | 0 recs

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