I Told You So

by: Bertha Lewis

Wed Feb 18, 2009 at 16:00

( - promoted by Bertha Lewis)

It is good to be back here at OpenLeft. Thanks to the site's editors, I will be posting from time to time on ACORN's major campaigns and the work being done by progressives to push for the kind of policies we need to get America back on its feet and back to work. I'm starting with the work we are doing to address the foreclosure crisis at the heart of the economic meltdown. -- Bertha

Yesterday President Obama signed into law the economic recovery package that is a firm first step forward in getting America back on its feet in the midst of the economic devastation we are experiencing.  

Today, President Obama announced his Administration's $75 billion plan for addressing the foreclosure crisis engulfing the country. This is a welcome initiative, especially in the wake of the 2 years of inactivity and neglect from the Bush Administration.

I would argue that in terms of addressing the specific genesis of our present crisis - the toxic assets crippling the financial sector - the announcement today is of greater magnitude. For without a plan to address the predicted 8-9 million foreclosures over the next 4 years, that's in addition to the 2.3 million that occurred in 2008 with a total estimated cost to the economy of over $850 billion, attempts to spur an economic recovery will fail. There can be no long-term solution without addressing the immediate foreclosure crisis.

I talk about the problem and what we can do about it in the extended entry.

Bertha Lewis :: I Told You So
How do I know? Well, ACORN has been fighting the problem at the core of the foreclosure crisis since 1999. Called "predatory lending", it is a series of practices concentrated in the subprime mortgage market that enriched brokers and investors while setting up borrowers to fail, principally in the refinance market. But the problem, despite its heart-breaking effects on families, was concentrated in communities of color or low- and moderate-income communities so it ran below the radar.

And I hate to say "I told you so", but in 2006, as the problem raced towards a crescendo and the predatory practices of the subprime industry grew nationwide, ACORN issued a report called The Impending Rate Shock (PDF) that said these practices "pose a huge threat to the security of individual homeowners and entire neighborhoods."

What can I say? We told you so. Of course, we did make a fantastic mistake of scale: predatory practices posed a threat not just to neighborhoods, but to the entirety of the world's economy. Call it a failure of imagination. Or more accurately, call it a failure of the almost entirely unregulated investment banking system and its exotic financial instruments like credit default swaps and collateralized debt obligations. All of which were based on loans that were explicitly designed and sold to set homeowners up to fail.

This was an entire investment scheme worth trillions built on the backs of people like Denise Parker, highlighted in today's New York Times. A mother of three who works as a housekeeper at two Midtown Manhattan hotels, she bought a home in Springfield Gardens, Queens, in 2005 with an adjustable interest rate that, after two years, went up every six months. Her payments started at $3,500 and now are $5,050 a month. She fell behind last year and her house is scheduled to be auctioned off on Friday.

Or like Debra from Pittsburgh:

or Penny from Houston:

These folks are just some of the families facing the heart-breaking reality of foreclosure - and it is happening to one additional family every 13 seconds.

A problem of this magnitude, which affects all homeowners and the value of most Americans' single greatest asset: the equity accumulated from homeownership, demands a solution the size of which can only be addressed by the Federal government. That solution must include the following three key issues or it will not succeed and four families a minute will continue to lose their homes.

In the words of Mike Shea, the Executive Director of ACORN Housing Corporation, a sister organization to ACORN, a plan must:

• Establish standardized loan modification guidelines and federally subsidized economic incentives that will provide investors and the mortgage servicing industry with an ability to objectively evaluate the economics of the modification;

• Carve out protections for renters who, despite being current on their rent, would otherwise be in jeopardy of eviction due to the mortgage default of their landlord; and

• Grant bankruptcy court judges the ability to restructure homeowner debt and reduce monthly payments via interest rate reductions and principal balance forgiveness.

ACORN's Foreclosure Campaign will continue until the crisis has passed. We will continue to work to save individual families who are caught up in the mess through the ACORN Home Defenders. And we will fight for the principles outlined above against the fat cats and their allies in Congress so that we can take another step on the road to economic recovery.

This campaign is really part of a broader effort to secure progressive public polices to repair the country after the wrack and ruin of the Bush years and the failures of conservative ideology generally. The economic recovery package, the proposal to address the foreclosure crisis, the coming reform of the nation's health care system, the fight over Employee Free Choice, these are all pieces of the puzzle that will get America back on its feet and back to work.

And beyond that, these progressive policies are fundamentally about saving the American Dream, about living up to our best visions of ourselves as Americans, about reaching out to stand in solidarity with each other, and, inch by inch, making this a stronger nation.

One way you can help is to join with us and ask Congress not to give in to Wall Street and their coming attempts to gut the program announced today. If we want a new America we're going to have to fight for it.

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I Told You So | 14 comments
Good post. (4.00 / 2)
Thanks for all you are doing.

homeownership, local job market dependence, tying people down for decades with massive obligations -- (4.00 / 2)
Is it really to be encouraged? Is it really progressive? Is it good for us as a whole, or as individuals? Doesn't it restrict people -- and their opportunities?

This is interesting, and very relevant -- Florida: How the Crash Will Reshape America -- http://www.theatlantic.com/doc...

... The housing bubble was the ultimate expression, and perhaps the last gasp, of an economic system some 80 years in the making, and now well past its "sell-by" date. The bubble encouraged massive, unsustainable growth in places where land was cheap and the real-estate economy dominant. It encouraged low-density sprawl, which is ill-fitted to a creative, postindustrial economy. And not least, it created a workforce too often stuck in place, anchored by houses that cannot be profitably sold, at a time when flexibility and mobility are of great importance.

So how do we move past the bubble, the crash, and an aging, obsolescent model of economic life? What's the right spatial fix for the economy today, and how do we achieve it?

The solution begins with the removal of homeownership from its long-privileged place at the center of the U.S. economy. Substantial incentives for homeownership (from tax breaks to artificially low mortgage-interest rates) distort demand, encouraging people to buy bigger houses than they otherwise would. That means less spending on medical technology, or software, or alternative energy-the sectors and products that could drive U.S. growth and exports in the coming years. Artificial demand for bigger houses also skews residential patterns, leading to excessive low-density suburban growth. The measures that prop up this demand should be eliminated.

If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there. A recent study by Grace Wong, an economist at the Wharton School of Business, shows that, controlling for income and demographics, homeowners are no happier than renters, nor do they report lower levels of stress or higher levels of self-esteem.

And while homeownership has some social benefits-a higher level of civic engagement is one-it is costly to the economy. The economist Andrew Oswald has demonstrated that in both the United States and Europe, those places with higher homeownership rates also suffer from higher unemployment. Homeownership, Oswald found, is a more important predictor of unemployment than rates of unionization or the generosity of welfare benefits. Too often, it ties people to declining or blighted locations, and forces them into work-if they can find it-that is a poor match for their interests and abilities.

As homeownership rates have risen, our society has become less nimble: in the 1950s and 1960s, Americans were nearly twice as likely to move in a given year as they are today. Last year fewer Americans moved, as a percentage of the population, than in any year since the Census Bureau started tracking address changes, in the late 1940s. This sort of creeping rigidity in the labor market is a bad sign for the economy, particularly in a time when businesses, industries, and regions are rising and falling quickly.

The foreclosure crisis creates a real opportunity here. Instead of resisting foreclosures, the government should seek to facilitate them in ways that can minimize pain and disruption. Banks that take back homes, for instance, could be required to offer to rent each home to the previous homeowner, at market rates-which are typically lower than mortgage payments-for some number of years. (At the end of that period, the former homeowner could be given the option to repurchase the home at the prevailing market price.) A bigger, healthier rental market, with more choices, would make renting a more attractive option for many people; it would also make the economy as a whole more flexible and responsive.


Thanks for that excellent post! (0.00 / 0)
It adds a dose of reality to all the reflexive hand-wringing about home ownership.

I can believe that a real progressive  like Dennis Kucinich or a brilliant pragmatist (in the sense of actually having some practical accomplishments in his resume) like Wesley Clark might have pushed for an intelligent re-direction of exaggerated spending for home ownership, but Obama always plays to the lowest common denominator of economic half-truths, and the chance that he will make any significant changes in the fundamentals of the American economy is zero.

[ Parent ]
69% (4.00 / 1)
Home ownership, like it or not, is the norm.  Around 69% of Americans own their own homes.  For most (and nearly all except the very rich), homes are the largest investment and the largest source of retirement dollars (at least outside of Social Security).

Making a change that hurts 70% of the population is not likely unless the harm to the other 30% is enormous.  Since that is not the case, fuhgettaboutit.

[ Parent ]
Did you happen to read the linked article? (0.00 / 0)
Amberglow went to the trouble of linking an excellent article about exaggerated capital investment in home ownership, and you reply that most Americans have sunk all their capital into home ownership, as if you were refuting something, but obviously not the argument that Richard Florida actually made, which you apparently didn't even notice.

[ Parent ]
I have now (4.00 / 2)
First, my comment was political.  Any political solution that hurts 69% of the population, some in a crippling manner, is unlikely to be taken up unless we are facing something at least as large as the Great Depression or as morally compromising as slavery.  Neither is even close to being the case.  Jimmy Carter nearly lost the Presidency in 1976 by making an offhand comment in one of the Presidential debates that he might eliminate the mortgage deduction as part of an overhaul of the US tax system.

Some of the article makes sense but the part on housing is way overdone.  Certainly any long term downturn (and I hope we don't have it) is likely to have winners and losers.  Duh.  I'm no fan of Obama.  He's much too conservative for my taste and gives away too much to business, especially the banks.  And that is what seems to be the most promising thing to focus on.

1)The standard 20% down would have covered much but not all of the bubble.  Certainly for those who bought a little earlier or put a little more down, their home still maintains equity, just less than before.  The alternative investment which also benefits from even bigger tax breaks (particularly for the super rich) is the stock market.  At least housing creates something of value.  Except for new companies, stock does nothing (it doesn't create capital just speculates in it).  Bonds on the other hand and loans are often used to create something: an office, equipment, a factory, etc.  And the stock market has exhibited that dive by falling further and faster than housing,

2) Get rid of a lot of the fancy mortgages and stock speculation vehicles.  The derivatives, short trades, options, etc, fueled the fire.

3) At least some of the increased value of homes was due to upgrades, remodelling, expansion, etc.  And at least some of that was done through sweat equity.  Much of the rest was done by blue collar labor and filtered down.

4) Some of the article's history was flawed.  There have been three periods where unemployment topped 10% for more than a year or two.  The first was the Panic of 1837 where the slump lasted for about five of the six years between 1837 and 1843 (there was a one year remission around 1837-38).  The second was the Panic of 1893 where unemployment reached 18.4% and topped 10% for six straight years from 1893 through 1898.  The third, the worst by far, was the Great Depression with ten straight years over 10% (1931 through 1940) topping off at a terrible 24.9%.  Making a "long depression" is like combining Eisenhower's three recessions into one.  The data is from the US Census Bureau's Historical Abstract: Colonial Times Through 1970 and is available online at www.census.gov or at virtually any library.

5) My parents and their relatives lived through the Depression as adults.  It made them very cautious and life long savers.  It also made my mother's family very strong Democrats.  Your article quotes some one along the lines of every crisis is an opportunity.  FDR created lots of jobs.  My mother's first job was to do the payroll for one of the WPA construction projects.  Those turned out to be starter jobs that cretaed a very productive generation.  These new jobs can be the same.  Who knows, maybe the Millenials or Gen Ys will become another Greatest Generation.  Done right and the Democrats controlled the government for nearly 40 years and the House for 60.

Want to start a ferocious argument with my mother's family?  For years any criticism of Roosevelt would do the trick.  Unemployment, after all fell from 24.9% to 9.9% pre WWII and thousands of local construction projects left a legacy of schools, dams, roads, bridges, post offices, high school football stadiums, and millions of people with a useful and productive life.  

Create value, don't destroy it (or threaten it).  That's the ticket.

[ Parent ]
Thanks for replying. (4.00 / 1)
I would guess that you and I probably agree about most political issues, and I'm right on the same page with your mom's family about FDR. The new, nauseating Republican propaganda about the New Deal makes me want to kill something! Goddamn them all!

I also agree about abolishing the fancy derivatives that are now sucking trillions of real dollars out of the Fed. The creation of most of those monstrosities only became possible after Larry Summers pushed the Commodity Futures Modernization Act of 2000 through Congress for Bill Clinton. Again, goddamn them all!

But I still think Richard Florida makes a case for de-emphasizing home ownership as an essential element of what every American thinks of as "the good life," especially when "home" just has to be a VERY BIG HOUSE.

Suburbia is full of childless couples in 5,000 square foot houses, or bigger, or even much bigger, and most of that space is a matter of vanity rather than comfort or convenience or whatever.

Now we have a real "bonfire of the vanities," with millions of people in upside-down mortgages, and the economy is shutting down faster than Obama's weak stimulus can pump it back up, as you know.

But even apart from the current disaster, I agree with Richard Florida that there has to be a more productive use for all that capital, beyond providing vanity space for yuppies, and home ownership could be gradually de-emphasized without a negative impact on however many home owners are lucky enough to survive a very long slide in value that has only just begun.

[ Parent ]
"The norm"? Hmm, not really. (0.00 / 0)
Afaik from reading mortgage and housing blogs, especially irvinehousing.com, home "ownership" was at an all time high at the end of the bubble (even though some people never really "owned" their homes because they never paid more than interests on their mortgages). So, it's only the norm if you think 5% more ore less doesn't make a difference.  

[ Parent ]
Yes, the norm (0.00 / 0)
Home ownership has been above 60% for around 50 years.  Moving up or down by 1% or 3% doesn't change that.

[ Parent ]
Looking at data since 1964, the "norm" seems to be about 64.x%. (0.00 / 0)

And a difference of 5% translates to about 15 million more citizen living in their own home. Ok, this may not be a significant change for you, and you made not deem it important that the numbers reached an extremum of 69% in 2004 and 2005, but others mileage may vary.  

[ Parent ]
It's like an A-bomb hit Pontiac, MI (4.00 / 2)
the houses are there but the people are gone.  Engler vetoed predatory lending legislation just before he left office dooming the area.

Sounds more like a Neutron Bomb, but good point. (0.00 / 0)
And isn't this totally paradox, on the one hand there is an increasing number of homeless people in the US, and on the other hand there are neighborhoods looking like ghost towns? Something should be done to get people out of their cars and tents and into those houses. That people have trouble to even find a rented appartment, even though they have a job, simply because foreclosure ruined their credit ratings and makes landlords hesitants, is a dire problem that should be dealt with. It should be in the interests of both the banks,and the communities, to establish renting agencies and find tenatns for those boarded up houses. With a little bit of federal help, this could become a winning move for everybody.

[ Parent ]
Bertha Lewis (0.00 / 0)
As a Brooklyn resident, it's hard to see your name and not remember your role in the Atlantic Yards debacle.  Under your leadership, ACORN gave Bruce Ratner's megaproject the imprimatur of "the community" (and I believed received some financial consideration from the developer for this seal of approval).  Atlantic Yards was an extremely ill-conceived project -- tons of public subsidy for some very dubious public benefit -- that now seems destined never to be built, thanks to the collapsed real estate market, but not before Forest City Ratner tore down a number of buildings.  Those lots are probably destined to be vacant for years to come.  Sad, because at least one of those buildings was quite attractive and could have been re-used instead of torn down.

Well (0.00 / 0)
I'm glad you commented on this posting and I'm sorry that we were on opposite sides of Atlantic Yards. People of good intention are not always going to see eye-to-eye and here I think we will have to agree to disagree.

But I suspect that there are a lot of things we have in common. There must be some way we can bridge that difference and work on things upon which we both agree.

We're working on addressing the foreclosure issue. What are you working on?

[ Parent ]
I Told You So | 14 comments

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