From time to time, since Destination Casa Blanca's run as a series has coincided with terrible economic crisis, we've checked in on the economy and tried to assess its particular effect on Latinos.
And this week, the economy offered a mixed bag of indicators that can only leave you unsure about the future. The housing market takes one step forward and two steps back. Unemployment was down, but only because some of the workers counted in earlier monthly reports have left the labor market. The financial markets, up smartly for months, have made a small retreat.
Latinos are heavily, but not solely, concentrated in sectors of the economy that have taken a hit. The particular circumstances of this downturn, so wrapped up in housing... has had a particularly damaging set of effects, as Latinos suffered because of their heavy employment in construction and their status as recent homebuyers. When the housing crisis began with thousands losing their homes when their subprime mortgages became unaffordable, minority homebuyers suffered. As the economy shed millions of jobs, Latinos lost as retail, construction, manufacturing, and services all took big hits. Stripped of employment, or working many fewer hours, Latinos with conventional mortgages began to lose their homes in big numbers... it was no longer a subprime crisis, it was now just a question of families no longer able to generate enough income to service debt on houses worth a lot less money.
Our guests, as you might imagine, had different diagnoses, and prescribed different medicine. Though they came at the challenges from different ideological perspectives, there was a lot of agreement around the table. The choices facing the national government and the states are all pretty lousy. The recovery will take a long time to soak up the excess housing stock, and that oversupply of housing will work as a drag on housing values for the millions of families hoping their home will be worth at least what they paid for it in the first place.
One good example of the "no good choices" menu is unemployment insurance. Some economists have concluded that the extensions on jobless benefits have allowed workers who might have settled for work at a lower rate of pay, changed jobs, or moved for work to continue to look and remain out of work instead. The payments to jobless workers have been extended to nearly two years... 99 weeks... but even at that length a wave of workers is about to hit that wall.
What's the right thing to do?
It was pointed out that taking borrowed money, giving it to an unemployed person, and having them spend it does send money moving through the economy, since a person with no job is likely to spend all the benefit. On the other hand, since the money is borrowed, it places a heavy burden on the economy in the future. You either have to pay it back, or pay the interest, neither being a particularly productive way to use a dollar that has to be collected from taxpayers in the first place.
If a person who has been unemployed for a long time stays in their home with the subsidy of an extended unemployment check you might say that is a decent use of the money. After all, the tremendous suffering right there at street level, at neighborhood level, is avoided. The terrible downward pressure foreclosures can have on individual neighborhoods isn't made worse. One family hangs on, without the devastating loss of a home.
But what if all you have done by extending that benefit using borrowed money is postpone the day of economic reckoning? Let's say a family bought a house in an overheated southern California market for 300 thousand dollars before the bubble burst. A few years later the two-income household has lost one income entirely, and the other adult is now working fewer hours.
The family is running through what little savings it had. Houses are now selling in the 125 thousand-140 thousand dollar range, but our homeowners are doubling down, liquidating assets to pay the mortgage on the much higher value. The bank doesn't seem interested in modifying, the unemployed partner can't find a new job, and other families up and down the street are losing their homes too.
The panel talked for a while about what the best outcome might be. The difficulty that crept into the conversation was one that has stalked debates on these issues from the very beginning. The bank does not want to admit that the home they lent so much money for is now worth half. The homeowner is struggling to keep the family boat afloat, but holding on until the mortgage is no longer underwater seems impossible. Unemployment insurance is extended with money governments don't have.
If our family finally hits the wall... walks away, is foreclosed, short sells...what has been accomplished. Tragedy hasn't been avoided. Savings are wiped out. The bank, so reluctant to reflect that new, lower value on the home now is the proud owner of a house it doesn't want that is now even worth less than when they refused to adjust the principal payment on the loan. And the government still has to service the debt that's been taken on to "help" the family in the first place.
It was hard to determine in the course of our discussion whether this was a worthwhile gamble. A growing number of families have managed to rewrite their mortgages to avoid foreclosure, and have ended up losing their homes anyway once the problem became one of insufficient family income rather than declining values. All that happened during the months of struggle and demands on government and bankers was a postponement: the house was not repriced at a level that reflected its real value in the marketplace, workers were able to hold on to the hope they could find a new job that paid as much as their old job and refused work at lower pay while subsidized by borrowed government money.
It's a mess. Away from politics and heated partisan debate over what to do next is the operation of the real live economy. The one where millions of people get up and head to work, and try to cover all their obligations out of the money they get for their labor. Because so many Latinos had only a precarious foothold in the middle class when this all began, the sickness that has spread through the economy has been an even heavier burden for them. For families trying to grab for their share of the American Dream, this may end up a lost decade.