[Ed.: We decided to repost Gregg Robinson’s very recent article on San Diego’s foreclosure crisis, due to several factors, including the interest shown in it immediately, plus we posted 4 articles after his, burying Robinson’s very timely piece. So, here it is again. If you’ve read it, go to the articles below it.]
THE RETURN OF TOM JOAD
“Nominal house prices in the aggregate have rarely fallen and certainly not by very much,” Alan Greenspan, 2005
Just as San Diego led the nation into the housing bubble, it is also leading our country into the foreclosure crisis. In communities like Chula Vista, Oceanside, Spring Valley, Barrio Logan and Golden Hills thousands of working class home owners are facing foreclosure and eviction from their homes. Roughly half the homes sold in our community in the last few months have been the result of foreclosure or some other form of financial distress. Unfortunately, this situation will only grow worse in the next year as tens of thousands of sub-prime loans adjust to market rates.
Many residents facing foreclosure are simply giving up. Convinced that there are no options open to them, they are abandoning their homes. Other vulnerable home owners are being scammed by rip-off artists posing as foreclosure counselors who cheat them out of their equity and their homes.
This crisis can be expected to have ripple effects. As working and middle class families lose their homes to foreclosure, they will join thousands of other low and moderate income San Diegans in the rental market. This will result in an escalation in rental costs that will worsen housing affordability. Homes that are abandoned will also bring down the price of the entire housing market, decreasing both the tax base and funding for city and county services. Ironically, these abandoned homes will also drive up the cost of these same government services as abandoned homes necessitate greater police and fire department protection due to vandalism and other illegal activities.
We hear from some in the financial community that any kind of protection for these hard pressed homeowners is counter productive. They argue that there is a “moral hazard” created when government protects consumers from their own foolish decisions. These consumers, they claim, will only go on to future acts of economic irresponsibility if they are not “disciplined by the market.” This advice, however, is hypocritical. Remember that a few months ago in the midst of the housing bubble these same experts were hyping teaser rates, no down payment mortgages, and liar’s loans as the “beauty of financial innovation.” Remember as well that when the Savings and Loan industry went belly up in the 1980’s or when hedge fund operators got into trouble in the late 1990’s similar experts told us we needed to bail them out in order to protect financial stability in our country. The doctrine for the rich has been “too big to fail,” while the policy for the middle class is “too small to notice.”
This is the greatest crisis in the home market since the great depression, and the solutions to it should reflect this fact. The key is to use the power of government to bring this economic meltdown under control. There are a number of variants on this theme. Some have suggested that we revive the “Home Owners Loan Corporation” that was created during the Depression. This government agency would buy up distressed mortgages at drastic discounts, and then offer favorable terms to home owners. Another suggestion is to simply pass legislation that forces mortgage holders to rent these homes back to their occupants at reasonable rates. Home owners in trouble would have to give up title to their property, but in return they would be guaranteed reasonable rents for as long as they chose to live on the property. Finally, others have called on the government to pass legislation that would force lenders to restructure loans into a form that is more affordable by borrowers. What all these share is an increased role for government..
While any of these government based solutions would solve the home mortgage crisis, they have an even more important advantage. These actions would reinvigorate the sense that government is the solution to major social problems. The last thirty years has been dominated by neo-liberal economic orthodoxy. The claim that government is the source of, and the market is the solution to, every problem has been a lie drummed into Americans. Bringing the state back in to solve the mortgage crisis returns government to a central role in progressive reform which, in turn, sets the stage for future reforms in healthcare, the environment, education, etc. This would put Reaganism and neo-liberalism into reverse. Once we have re-established the progressive role of government, a host of insoluble social problems are open to attack. It would remove the ideological blinders that have put so many progressive reforms out of reach.
Unfortunately, these government solutions to the mortgage crisis will probably have to wait for a new administration in Washington. In the mean time, we need short term solutions at the state and local level that keep people in their homes until an Obama or Clinton administration is able to solve this mess.
These short term solutions would involve local governments calling for moratoriums on foreclosures. State governments, city councils, and local boards of supervisors could declare moratoriums and then order local officials to refuse to enforce any action having to do with foreclosures. If local judges refused to order and local sheriffs refuse to enforce foreclosure and eviction orders, then the hemorrhage of working class families from their homes would be staunched. At a minimum, the housing market for foreclosures would be thrown into a chaos that would take months to sort out. That is what we want. We must play for time while national politicians come up with long term solutions.
Finally, where local governments refuse to get involved, community activists must take action. If our financial overlords have given us the 1930’s in our mortgage market, we must return the favor by giving them “Tom Joad” in the streets. Sit-ins at foreclosure hearings, “eviction parties” where demonstrators refuse to let families be removed from their homes, and pickets of banks and real estate offices that specialize in foreclosures should be the order of the day.
This is more than 1930’s nostalgia, it is the kind of politics necessitated by decades of greed and indifference. We must face this situation with both the creativity and commitment that existed during the Depression. We must have the courage to push this issue into the headlines and into the lap of government as our grandparents did nearly three quarters of a century ago. We are struggling not merely to save the homes of millions of Americans, but to create a home for the next wave of progressive politics. To paraphrase FDR, “the only thing the left has to fear is fear itself.” Now is the time to put fear aside and act.
{ 5 comments… read them below or add one }
From Wolf Laurel in the mountains – The real estate problems resulting from the sub prime market meltdown are increasing across the US far outside of just FL, CA and Las Vegas.
I believe Merrill Lynch is correct about the arrival of recession in the United States. The housing downturn is negatively impacting property sales in second home communities in Florida. This is also slowing sales in NC mountain resorts that depend on Florida buyers.
Still the downturn in prices and building of inventories is starting to attract second home buyers from Florida looking for cool temperatures in our mountains. Also the dramatic decline in the dollar combined with weakness in American real estate markets are beginning to interest some bargain hunting European investors.
Ron Holland, Broker/Realtor with Wolf’s Crossing Realty. See http://www.ronaldholland.com Ron markets resale mountain and ski resort properties in NC in Wolf Laurel and The Preserve at Wolf Laurel.
I believe in the sincere tone of this article, but I disagree with its argument and its conclusion.
There is no parallel between the savings & loan crisis and this housing/credit bubble. Government was right to use tax dollars to straighten out the S&L’s because the banking system serves a common good. The housing/credit situation is different. It developed because working class people bought homes they could not afford and because some middle class homeowners abused home equity lines of credit and 2nd mortgages. It is wrong for government to reimburse these homeowners and wannabe homeowners for their own foolishness and greed – especially many of these middle class borrowers who used refinancing as a way to cash out and take the money and run.
This posting also mentions the rental market. There may be a temporary strain on the rental market. But with increased demand there will come an increased supply. The market will adjust to and supply this need for more apartments and other rental options. It will take time and it will be uncomfortable for some, but that is unavoidable.
Another point this posting makes is that government will return to its role as a solver of social problems. I hope not. Regardless, this housing/credit bubble is a market problem. People took advantage of and abused credit. They bought more than they could afford. They could not or did not make their payments, and their creditors rightly foreclosed to protect their own interests. This happened on a large scale, and the credit market responded by tightening lending standards.
This was not and is not a conspiracy to bilk or take advantage of working or middle class people.
Gregg Robinson Responds:
Ron makes an interesting point. The reverberations of the subprime crisis have impact far outside of the San Diego’s and Las Vegas.
Both Lyn and Ron share a faith in the market with which I disagree. Yes, in the long run the market will eventually resolve this problem. However, as the economist John Maynard Keynes said to similar suggestions during the Great Depression, “in the long run we are all dead.” That is, this kind of blind faith in the market destroys the lives of real human beings. The millions of working class and middle class homeowners who will be thrown into the streets as a result of this “economic tough love” is not only morally unacceptable it is also economically short sighted.
Morally, Lyn suggests that it is merely their own fault that these people are losing their homes. After all, he implies, they have only themselves to blame for accepting the equity line or the sub-prime loan. This is a morality, however, that ignores the facts. Was it not Alan Greenspan and the Federal Reserve bank that flooded the country with the liquidity that pushed home prices up and inflated the housing bubble? Was it not the enthusiasm of our economic elite for deregulated financial markets that made both the exotic mortgages and the melt down in the credit market inevitable? Finally, was it not our President who after 9-11 told Americans that they had a duty to consume in order to ward off terrorism. If a con artist swindles an unsuspecting crowd in a game of Three-Card-Monty, we jail the con artist not the crowd. The morality of this housing crisis is obvious: the greatest fault lies with those who did the swindling, not those who were swindled.
The economics of this is equally clear. While Lyn says that it was O.K. to bail out the Savings and Loans because that was good for the country as a whole, he denies that we need this same kind of relief today. I suggest he look at the nearest newspaper headline. The crisis we are in is both more profound and systemic than the 80’s Savings and Loan mess. This crisis is not confined to the housing market; unfortunately, it now extends into all sources of credit. It was only a few days ago that we found out this mess is now affecting student loans. The government is trying to calm these credit markets by lowering interest rates. Why should this government largess be confined to only the rich and powerful? In fact, it makes good economic sense to help these home owners. During a recession there is a need to increase economic demand. This is most effective when we the income of low income people is increased because they are more likely to spend on consumption rather than investing or saving their money. Thus it makes economic sense to bail out lower middle class home owners because they will help us fight the recession that we are falling into.
Finally, I think my greatest concern about Lyn and Ron’s comments is their inability to think outside the “neo-liberal box”. Catechisms that the market solves all problems are best done in church rather than in economics. We need to recognize that the market can be wrong at times, and that government can be right. Simply repeating the tired nostrums of the last four decades will only dig us deeper into our current hole.
While I don’t like the idea of people being thrown out into the streets, I pretty much agree with Lyn. These people purchased home they could not afford. Period. And know this whole crisis is spreading to the whole economy. Those of us who new we couldn’t afford a home in San Diego and simply accepted that are now facing major rent increases because of what will become an increased demand. I have mixed opinions about government intervention. Yes there were some unscrupulous lenders but the buyer still needs to take a look at their own buying power. Taking a loan at an adjustable rate thinking everything will always be on the up and up is naïve, and now not only are these buyers in financial jeopardy, so will many other people who new better. Renters will face increased rates; business owners will face decreased business. I guess the have anger equally both for the greedy lenders and the naive buyers.
The way I understand it, the federal government will be repaid on the zero-interest, nonrecourse loans. Loans for homeownership properties would need to be repaid within two years, while loans used to create rental housing would have a maximum loan period of five years. Dave