The economic grenades are going off. Just pick up today’s newspapers. The subprime lending crisis is metastasizing; foreclosures on homes purchased with subprime mortgages are expected to reach two million by the end of next year; the unemployment rate is soaring; oil has hit $100 a barrel; the credit crunch is causing an unprecedented liquidity squeeze; and consumer spending is dipping sharply; and the Fed Chief, citing recession fears, is signaling that the Fed will cut interest rates soon, perhaps by a large amount.
While we hear and read more about the impact of the credit crisis for Wall Street’s big boys, don’t lose sight of the impact on Main Street.The financial pain and stress is rippling fast thoughout the economy and country. A friend just back from Detroit says that one of the local papers, a couple of weeks ago, ran a 120-page thick supplement filled with notices of foreclosed homes for sale.
On January 6, as Max Fraser reports in our latest issue, Rainbow/PUSH Coalition’s Wall Street Project Economic Summit focused on the subprime mortage implosion and its impact on the economy. The crisis, warned Reverend Jesse Jackson speaking before a battery of local politicians, housing activists and civil rights leaders, “is sinking America’s economic ship like the Titanic.” Black homeowners have been hit especially hard–largely because predatory lenders have been steering them toward subprime loans for years at more than twice the rate of white homeowners. “It’s the single largest economic issue of our time,” said Jackson, “a crime committed on Wall Street, made possible by the complicity of the US government.” Watch for House Judiciary Committee Hearings and investigations into Wall Street and subprime scams. And on January 22, Rainbow/PUSH and the Urban League will lead a march on the Department of Housing and Urban Development in Washington to bring attention to the foreclosure crisis and try to force President Bush to address the crisis in his State of the Union speech.
As for Congressional attempts to grapple with the foreclosure crisis–at the end of last year, Congressman Barney Frank tried to push through legislation that extends moderate regulation to the subprime market. But he faces a tough fight because money still rules in DC. Just as the the hedge fund and private equity cowboys have lubricated the lobbying troughs and candidates’ war chests to avoid paying taxes at the same rate as a waitress or policeman, the mortgage industry is pouring in bucks to stave off even modest regulation of its often predatory practices.
But if we reward the mortgage industry’s lobbying, they will keep using the same kinds of deceptive practices to make a quick buck, no matter what the costs to home buyers and communities. They know they can always lobby Washington to get them off the hook if things go badly-as they have. Just remember that while predatory lenders were driving low-income families to financial ruin, 10 of the country’s biggest mortgage lenders were spending more than $185 million lobbying DC to let them get away with it.
Sure, some of the borrowers used their house an as ATM to finance personal consumption (but most used the money to help with soaring college tuitions and medical expenses) –and some argue these borrowers should face the consequences of their no-savings lifestyle. But the real victims of this subprime mortgage crisis are the millions of borrowers who followed the rules, many of them minorities, whose only crime was taking out mortgages these lenders told them they could afford. Now they can’t refinance or sell their homes because no one will lend to them and they can’t sell in a housing market that is falling.
The effects are already metastasizing in the economy –with the worst effects of these loans not expected to be felt until 2008 or 2009. And with the housing turmoil most severe in some of the most hotly contested political battleground states–Florida–with one foreclosure filing for every 248 households in September, and Ohio, with one foreclosure for every 319 households, according to a survey by RealtyTrac, Inc, Republicans could face real trouble because they control the White House and the GOP’s presidential candidates have looked both clueless and heartless when they deign to address the housing issue. In their very first debate focused on the economy in Michigan –a state which ranked No. 4 in RealtyTrac’s foreclosure rate survey– not a single Republican raised housing concerns.
Nor did the economic insecurity roiling the country emerge in any significant way in Thursday’s Republican debate in South Carolina. Sure, former Arkansas Governor Mike Huckabee presents himself as a folksy populist, saying he’s not a “wholly-owned subsidiary” of Wall Street, but he also embraces such conservative follies as the flat tax, which would jack up taxes on the middle class reducing them on the wealthy. For the other GOP candidates, it’s clear they’ve never seen a tax break for the rich that they don’t like.
Though bolder policies are needed, at least the Democratic candidates are starting to address the economic insecurity and pain confronting millions. John Edwards has called for a policy that prohibits many predatory-lending practices and would make it easier for homeowners to save their homes. Hillary Clinton has started talking about the rising unemployment figures, laying out how an energy policy would create a million or more new “green-collar jobs”, and she’s issued a detailed policy paper on subprime lending that calls for imposing restrictions on lenders.
Barack Obama argues that we need to address the “root of these problems” and lays out how we could update mortgage rules for the 21st century–enacting the regulatory and disclosure laws the industry has lobbied so hard against in these last years. The implosion of the subprime lending industry, Obama argues, ” is more than a temporary blip in our economic progress. It is a cancer that, given today’s integrated financial markets threatens to spread with devastating impact to our economy as a whole, contain it. ” And his election night concession speech in New Hampshire was the most populist he’s given –with references to South Carolina textile workers and Las Vegas hotel dishwashers and with an English-language version of the old United Farm Workers battle cry: “Yes, we can” (“Si, se puede”). With each passing day, Obama is also incorporating more of Edwards’ attack on corporate power into his stump speech.
The looming recession, the credit crisis and the bailout of Wall Street’s high rollers will insure that the economy gets more attention in these next months. Yet the stark contrast between the two parties is already clear. Republicans, with the exception of Huckabee, tout Bush’s success; Democrats decry an economy that benefits only the few. Republicans embrace the conservative dogmas. Democrats support an activist progressive government on the side of the working people, but thus far their policies still seem more limited than the challenges we face.