Beware False Profits

Miami was where it started: the easy financing of endless high-priced condos without a clue of who would actually buy them. Ninety thousand of them were built on paper; bought, and traded in the Magic City before they were even completed. In the boomtown frenzy of quick cash, high flip rates, the entire housing market went crazy in the Sunshine State. Speculation got politicians drunk - Miami Mayor Manny Diaz was on the cover of magazines as his newfound economic engine heralded a renaissance of the city; the developers had saved us all. Ballooning property values fattened city and state budgets. With free flowing campaign contributions from high developers, the governor, the GOP controlled state legislature, and the complacent Democrats went along with drastic tax cuts that everyone knew would be devastating when the bubble burst.

Meanwhile, low-income communities were the canaries in the coal mine. At the height of the bubble, low-income black and immigrant communities were crying out about the disaster underneath. There was an affordable housing crisis by 2003, as home prices began skyrocketing and both state and private actors abandoned the preservation and production of low-income and moderate-income housing. More importantly, real income and real jobs were growing increasingly out of reach. There are no "real" jobs that can pay the bills, no wages that can send kids to college, no work that people can be proud of. While developers and bankers threw champagne parties on South Beach to celebrate the newly glitzy towers in downtown, the people of Liberty City, Overtown, and East Little Havana had hit the downturn first.

Globalization has finally caught up to America. What's left is a hollow de-industrialized economy in the heart land, and cities that were built on serving the global finance industry or producing media and entertainment that said it was all okay. The only standing industry is the military, and even that is overstretched and not quite providing the spoils that empire demands. For 30 years, the United States was heralded globally and convinced us internally that this strategy is flawless, that global free market fundamentalism is the solution for humanity. For three decades, in rhetoric and in aggressive policy, the U.S. has championed neo-liberalism where governments around the world were forced to cut social programs and taxes to allow corporations to run amok. And like in Miami, where developers were allowed to make mega profits without any investment back into community, where there was blind faith in the trickle down theories, the world saw poverty deepen while the few that were connected to speculation got fat.

Some have called this casino capitalism, and for America the game may be up. The position of the American worker shows the dilemma of U.S. capitalism. As workers' ability to make a living diminished, and social safety nets were cut, Americans' actual buying power shrank. Just as easy credit, allowed for the creation of condos that nobody could afford, borrowing filled the void that real wages once provided. People began using credit cards and taking loans at an unprecedented rate. This was not just people's choice it was official policy. The federal government fueled and encouraged loose credit, and finance institutions happily followed. Especially in working class communities that were strapped for cash, credit was loose. Cheap loans were financial crack in the community. The economic depression that is now coming was staved off through fake loans and fake money, but the longer and bigger that fictitious capital grew, the bigger the crash.

American capitalism is in trouble. After decades of deregulation, union busting, destroying social services, and saying that there is no room for 'big' government, the government is now going to spend more on the national financial bailout than any other government intervention ever. The financial bailout would be the largest government nationalization of an industry in the history of the planet. However, despite spending all that money, the government, and moreover, the public, are not going to own the banks. In other words, we are paying for nationalizing the financial industry without actually owning the assets that we're buying. While opposed to big government spending on education, housing, and social security, $700 billion is a free welfare check for banks and insurance companies.

In doing so, the government hopes to stabilize the credit industry in the short term with overwhelming capital infusion. However, covering all that fictitious capital does nothing to resolve the fundamental issues in the U.S. economy. There is a double bottom line. If the U.S. cannot produce something beyond movies and money managers, it cannot survive. The strategy of the U.S. being the managers of the world economy just went bankrupt. If working class people cannot buy homes, food, and energy, with money in their pockets and not through lines of credit, then there is no end to the crisis. The economy can only be saved through those nasty two words: spreading wealth.

It is time to flip the script.

The good thing about the bailout is that a $700 billion price tag to save the economy is now common. So, take that first $700 billion for the banks and double it. Make it $1 Trillion, or more, which must be invested in the incomes of normal folks to spark the economy. Scrap the trickle down philosophy that resulted in inflated CEO salaries while regular folks continue to suffer. Put the money directly in the hands of our people and our communities. It's that simple.

Second, halt all home foreclosures and evictions. The mortgage crisis is the largest loss of wealth in communities of color, ever. We must halt the rapid erosion of wealth and ensure the basic needs of people are met. Use the money to reestablish wealth in those communities through underwriting empty homes and producing more housing in the urban core. Give those assets to people and communities that have a long term interest in their use and prosperity. Bring social security to where there was speculation.

Third, and most fundamental to the long term, we must ground the economy in producing wealth and value. The emerging green economy can pave the way to producing wealth again. It is a way out of the double crisis we are facing: the economic crisis and the energy crisis of oil. Massive investments must be made where the housing crisis first hit: Black and immigrant low-income communities. Investing in job-producing green enterprise in our communities - recycling plants, alternative energy, and green building supplies - will ground us in wealth-producing infrastructure for now and the future. And this time, instead of just handing these assets over to greedy corporations and banks, we need to imagine a new era of community and publicly controlled enterprises where the jobs, knowledge, and wealth stay in the community and serve the people.

Comments

[americaforme]

Casino Capitalism wow! You got it right. Know one talks about the credit card scams, the deregulated interest rates of 32%. Know one touches that one with a fork. Who's afraid of the Big Bad Wolf! Try the chickens in Washington. We've all been plucked like a Thanksgiving turkey, making the Banks get richer Wallowing in their usury. Its not just subprime, its the scheems of the credit card, robberies. We all need a Bailout, will that come for the disadvantaged? Thats a pipe dream, and everyones passing the pipe around now.

[Gihan Perera - Huffpost Blogger]

I'm happy to see so many comments on this. It's important that we get into the meat of this especially as the stock market continues to meltdown. What's interesting and apparent is that even as the $700 Billion financial bailout is easing up the credit market(llower interests rates, banks stabilizing, etc.), the REAL economy is still falling apart.

What we're seeing is the supreme crisis in globalization itself. The multi-national corporate folks made a pretty big decision that is now haunting them. That decision was that it was more profitable to manage, finance, entertain, and police the global economy rather than produce anything in it. Production can happen cheaper through exploited third world labor, and through free trade and loans, the profits could still come back to the homeland(the US).

So, the shuttered factories, the fleeing manufacturing sector, all of that was ok because through fancy financing and military strength, the US would still be able to extract super profits...mostly for the financial managers, the oli traders, the tecnhocrats and military industrial people...but hey, everyone else can serve them and make a buck too, right?

So it's not just casino capitalism as a concept, the US has actually, literally turned into the big CASINO. We're living in it. The whole economy is built to serve the global gamblers. Which may feel all good in the gold rush, but when it crashes, it crashes hard.

[Sundialsvc4]

I've got a suggestion ...

... factories.

We've got 'em. Hundreds of thousands of 'em. Shuttered after they were used to win World War Two. Replaced by an accountant's wet-dream called "We Sell for Less."

As the huge pipelines slurped up money and pumped it 10,000 miles away, the land became parched and barren, but not on the accountant's balance-sheets. When the cracks began to develop, they were ignored.

Money cannot be pumped long-distance. Henry Ford knew that the people who worked in his factories had to earn enough that they would be able to afford to buy Ford cars.

Our present "troubles" are the direct result of intentional criminal behavior, both within and without of the boundaries of the Government of the United States ... and they must be prosecuted as such. This is not "a business plan gone awry." This is Fraud. This is High Crime.

[smilinginmiami]

exactly. Factories, industrial production is the key. But it must be green, and jobs and ownership must be given to low-income communities of color.

[MajorKong]

Gee, maybe selling our houses to each other wasn't the best thing to base the economy on?

[DuganS1]

It wasn't just selling them to each other. There was also a major increase in home construction, a sector that traditionally has made up 5% of annual US GDP. In the boom years it reached 7%. Right now it's at about 3%. Inventories will be worked off in time, like they always are after home construction booms, and that will stabilize prices.

[GearheadGeek]

I have one fine-tuning point on this... it shouldn't be "halt all foreclosures" it should be "halt all foreclosures of the mortgagee's primary residence." There's nothing wrong with foreclosing on "investment properties" where you're not turning the owner onto the street... and if you want to protect renters, force the foreclosing entity to respect legitimate leases on rental properties, just transfer the lease payments to the foreclosing entity instead of the original mortgagee.

[iambusto]

How about letting the bank foreclose on the property but force the bank to put the homeowner back in as the renter. its a win-win.

Banks keep getting the payments, homeowner is not out on the streets. anything wrong?

[smilinginmiami]

That is still a loss of wealth for families and then rippling out into the community. Banks need to take responsibility for bad mortgages. Wealth needs to be maintained in the community instead of fleeing it.

[DuganS1]

Halting foreclosures for most folks simply delays the inevitable and slows down the turnaround process. Too many folks are in well over their heads financially, and allowing them to live in that home without having to make mortgage payments for an extended period doesn't do a lot of good IMO.

[smilinginmiami]

What turnaround process? home sales are at an all time low (as well as construction). People are in over their heads financially. Just like Bear Sterns and AIG. so where is the bailout? Halting foreclosures will allow people to get their feet under them. If int he meantime mortgages were adjusted to present values, and interest was set at a resonable rate it could lead to an increase of wealth through accruing equity. Homeless and loss of wealth should not be inevitable.

[DuganS1]

The idea that there were (or are) no good paying jobs in Miami is wrong. I like how the author uses anecdotal evidence from one person to try and prove that. Second, there have never been many (or any) factory jobs in Miami so "de-industrialization" is not an issue there. How could it be?

[Brokenduck]

What planet do you live on? Seriously....when you have Wal-Mart as the largest private employer in the nation for several years now, you know something is wrong. And the only real job growth in the last six-seven years was in real estate/construction/finance: all based on the bubble that has now blown up.

I am from Fresno originally and drive there often to see my folks. I see the vast communities of McMansions that have gone up everywhere. My old neighborhood is gone. That would be fine, but in a place like Fresno, you had people....low-income people.... buying into this market with lies being whispered in their ears. They had been told for years that housing prices would never come down and that the American dream could be theirs, interest only. If you don't believe me, just turn on any AM radio station and hear all the ads for super-low financing that are still everywhere. Of course, there are a lot of debt repair ads too.

I never bought into that crapola because I live in a place where even doctors and lawyers cannot afford to buy in. And I also refused to believe all that Republican BS about the economy being stronger than ever.

[DuganS1]

Miami is not Fresno. Miami is a tourist city and most the people there have jobs related to the tourist industry; although over the past decade or two a large amount of people worked in the construction industry as well. All the times I've been to Miami I've never seen a Walmart. I'm sure there is one or two somewhere but it hardly employs more than a trickle of Miami area residents. I'm sure the hotels on south beach employ a lot more than Walmart does. And the Port of Miami employees many many more.

[MajorKong]

It may not be in Miami but it sure as heck is in Ohio and Michigan.

[schatsie]

I am super impressed with your article...
But I think it is time to BRAIN STORM for other policies that will bolster the economy and NOT COST THE TAXPAYER A DIME..

ONE is restoring the caps on interest rates, and while we are at it cap the increase in the mortgage payments... That it cannot go up more than 25% every 5 years...SOCIAL POLICY protecting the residential real estate market...

TWO is ALLOW DRUG IMPORTATION FROM CANADA... This will not cost a dime and will drive down drug prices...MAYBE someone thinks we can afford to spend 1/4 of the drug revenues to send Doctors on Vacation, but that is not my thinking..

THREE is STOP the War on Drugs and use these people in our education system to support the teachers and parents (who are too busy working and loosing their sick time and vacation time in the NAME OF CAPITALISM).

FOUR is support the troups who are coming home with real job programs... for health care for universal healthcare...

Please keep up the great writing!

[smilinginmiami]

THAT"S RIGHT!

[proreality]

The "me" society is a bankrupt society but too many in this nation are deluded by the lie to understand that. We are a nation of joe the plumbers, unable to discern our own interests over the interests that have been forced down our throats. Unable to comprehend the reality laid out plainly before us from the fictionalized reality created by the corporate propaganda machine. To ignorant to listen to reason, to ready to listen to ignorance. Incapable of paying attention, ill-equipped to find answers and to stupid to understand we are being made fools of.