Polar Bears, the Housing Crisis and Forbidden Truths

I recently saw a Disney movie about a polar bear struggling to survive in the arctic. But the ice floes were just too brittle he could never get a foothold. Unable to reach solid ground he drowned. I cried. But I think I understood why.

One doesn't have to be a rocket scientist to figure out that when polar bears are drowning climate change is here. Some want to say it is just "El Nino," or a natural weather cycle. As Al Gore has shown us global warming is still a forbidden and "inconvenient truth."

In many ways America's middle class are like the polar bears. We are drowning too. With one measure showing real unemployment well above 15 percent America is in a depression. But we don't call it that. The official story circulated by the media was that this so-called recession was a cyclical phenomenon. Something like El Nino.

The foreclosure crisis is indeed a storm, but it is completely man-made. Millions of people are loosing their homes because of greed. That is the forbidden truth about the housing crisis.

Banks overcharged for homes in 2005-2007 that they should have known were not worth the inflated prices. Wall Street compounded this by speculating that housing values would keep going up. Wall Street banks were supposed to check over the computer tapes which held the mortgage records to see if borrowers were really qualified to buy. But as Professor Black has noted they were selling securities linked to mortgages so quickly they didn't do the checking.

It was like a restaurant selling a plate of food underneath a silver cover. Everyone was gambling, betting that no one would look under the cover. There was nothing on the plate. This created a bubble of inflated prices. As late as 2007 Bernanke, the Federal Reserve chairman stated in effect "There are no bubbles in the housing market." But there was a bubble, it burst and the foreclosure crisis is the result.

Now the federal government is talking about a 26 billion dollar fix. This is not a fix. It is window dressing. It only helps about 1 million people while 11 million people stand to lose their homes.

I think that the reason there is no real fix is the same reason the housing crisis happened to begin with. The latest deal is brought to you by banking interests and their friends.

The banks are gambling again. They are gambling that the economy can continue to sustain potentially 11 million people loosing their homes to foreclosure. Each foreclosure lowers the value of the other houses. Blacks are particularly hard hit. 33 percent of blacks 45 and over report they have difficulty meeting their payments. The black middle class is likely to drown first. But the banks are still betting the number of foreclosures can keep going up and up and up and that it will not effect them. "We the 1 percent are insulated from the continuing plunge of home prices!," they seem to say.

They're wrong. The economy cannot sustain another 11 million foreclosures. The problem is that it simply creates another bubble. When banks foreclose they list the foreclosed house -- which may have been vandalized and been unoccupied for literally years-at the price it was back in 2005. The truth is the house is not worth what it sold for in 2005. But for accounting purposes this is a forbidden truth.

The U.S government, through a board that makes the accounting rules, allows banks to list the foreclosed house for what it sold for before the crash. This is fantasy. But it is a fantasy facilitated by government "regulators." At some point someone is going to figure out that the banks are not worth what they say they are. That their values are hopelessly inflated. The banks by refusing to make real concessions with homeowners are gambling with their own credibility. Their ante is the public's trust and the future of our economy. It's time for the banks, and the federal government which is gambling with them, to put down the dice and make some real concessions.

Donald Jones is a professor of law at the University of Miami. He is working on a book about the social construction of the housing crisis entitled, "Narratives of the Fall: Bubbles, Bailouts and the Social Construction of Economic Crisis."