Salon recently reported that the Occupy movement is planning to begin a nationwide action protesting the foreclosure crisis, called Occupy Our Homes. Whatever your views of the movement itself, they are casting a bright light on the place where capitalism, our democracy, and our society have all failed: the housing crisis.
The financial crisis effectively started with the housing crisis, and it will not end until we find a way to resolve the housing crisis.
Economists who have repeatedly forecast a healing economy have misjudged the need for a healthy housing market as a central component for any type of economic recovery. The administration's current plans for preventing foreclosures are woefully inadequate, some experts believe housing prices are likely to decline as much as 20 percent this year, and our nation's cycle of economic misery will continue.
Since mortgage meltdown begin in 2007,
The housing and foreclosure crisis represents a conundrumwith plenty of blame to go around: banks that violated lending standards in asearch for easy profits; the creation of complex mortgage-backed securitieswhose risks were not fully understood; borrowers who took on far more debt thanthey could afford; the list goes on.
What the Occupy protesters recognize, either explicitly orimplicitly, is that since the start of the housing crisis, government actionshave by and large penalized suffering homeowners while rewarding banks that shouldhave failed because of poor business decisions. The government has notadequately enforced the laws associated withensuring foreclosures are valid, appears to have no concerns when banks wrongfullytake possessionof homes (which, I believe, used to becalled "criminal trespass" and "breakingand entering"). On the flip side, all of the administration's plans associatedwith helping homeowners facing foreclosure have failedmiserably.
All of this is bad economics, violates the rules of
Civil disobedience can emerge, even among the most conservative and normally upright citizens. During the Great Depression, foreclosed farms were auctioned on local courthouse steps. As the situation worsened, farmers took matters into their own hands. In what became known as "penny auctions," neighbors of bankrupt farmers would gather for an auction, physically prevent people from bidding on foreclosed farms, and then bid a token amount for the farms with the goal of returning the homesteads to their original foreclosed owners."
What is striking is the lack of creativity or sense ofurgency that has been applied to the housing crisis. Here is a guidingprinciple for action: Homeowners must remain homeowners. Yes, this may not be anidea that is universally supported. And yes, it may be unfair to those whoacted more responsibly. But the bailouts of the banks were also grossly unfairand I suspect hundreds of other significant, unfair government actions biasedtoward financial institutions and not consumers have taken place since thestart of the crisis.
As a nation, we no longer have the luxury of concerningourselves with fairness. Our economy is on life-support, unemployment is farabove the 6% to 7% level which then-candidate Obama called an
We have adopted a dangerous complacency around the housing crisis that must be abandoned. If our economy and social fabric are to heal, a sense of urgency is desperately needed.
One rarely remarked upon but dramatic aspect of the New Dealwere the many innovations associated with ensuring continued homeownership. Thiswas a central focus of FDR's effort to heal the nation. In 1933, Congresscreated the Homeowners Loan Corporation (HOLC), which bought up one in every fivemortgages in the U.S. and reissued longer term, lower monthly paymentmortgages. In 1934, Congress created the Federal Housing Authority to insurelong-term mortgages in a manner similar to the way the FDIC insures deposits,which ultimately made private lenders comfortable with 30-year mortgages. Mostof us don't realize that the 30-year mortgage was effectively invented in theera of the New Deal and that previously mortgages ran for periods as short asfive years.
A recent studyestimated that 29 percent of all homeowners with mortgages are underwater, andit's likely that a sizeable portion of thistotal is more than 25 percent underwater, which is generally agreed upon as thepoint where even solvent homeowners simply abandon their properties (also knownas jingle-mail, since the former homeowners send the house keys to the mortgagelender). As housing prices continue to drop, and I strongly believe they will,these numbers will continue to accelerate.
I do not have a specific policy proposal for fixing thehousing crisis, but I have no doubt that with sufficient determination andcreativity, this mess can be solved and we can move forward. The solution islikely to involve some pain on both sides -- losses for financial institutionsand homeowners perhaps trading a portion of their equity (under the auspices ofsome new type of government agency) for a substantially lower mortgageprinciple. Or, any number of completelydifferent solutions. But both sides made mistakes and so shared pain is not abad thing.
But what is a bad thing will be to do nothing. We simplycannot allow the impact of additional foreclosures to to further destroy oureconomy or allow our social fabric to disintegrate as more and more peopleconclude that they were cheated out of their homes.
In the era of the New Deal, increasing farm foreclosuresalso led to riots and widespread violence in the Midwest, something wedisregard today at our peril. In , I wrote:
These generally conservative farmers viewed their rebellion within the context of American principles. Arthur Schlesinger, Jr., who published the three volume study The Age Of Roosevelt, wrote, "Theirs, as they saw it was the way not of rebellion but of patriotism."...
I have no doubt that these [rioting] farmers would have explained their actions as a combination of anger and righteousness that would be echoed in our modern era: A corrupt system of home loans, combined with an economic system that was run for the benefit of a privileged few, unfairly destroyed their lives.
The housing crisis emerged and has been exacerbated by aviolation of the fundamental principles that make both capitalism and democracywork: accountability,
I have written elsewhere that the Occupy movement would notsimply disappear into the night. It is theflashpoint for the deep anger and sense of unfairness that pervades oursociety, with millions of people who feel their lives and dreams have beenunfairly destroyed, while those who played a central role in causing theirmisery continue to profit. Thetransition of the Occupy movement to a focus on foreclosures was inevitable; thisis the epicenter of our national tragedy.
The movement's focus on foreclosures will shine a necessary,even brighter light on our failure to address this central aspect of thefinancial crisis. These actions are an important and necessary wake-up call toour society about what is happening throughout the nation on a daily basis.
We can, of course, dismiss this latest act of protests. Butif we do nothing, I wonder how far we stand from the violence of the New Dealera or worse. At the time, FDR said,"The West is seething with unrest." Where are we?
This is article is part of my ongoing series at the New Deal 2.0 blog.