Presentation on theme: "FROM LEVITTOWN TO MELTDOWN"— Presentation transcript:
1 FROM LEVITTOWN TO MELTDOWN SUBURBIA, SECURITIES &SUSTAINABILITY
2 MAP Colloquium Presentation A MORALITY POWER POINT ON THE ROLE OF HOUSING IN OUR LIVES, THE HISTORY OF U.S. HOUSING, THE FINANCIAL CRISIS OF CAPITALISM…. AND THE POSSIBLE POLITICS OF SUSTAINABILITYJan BreidenbachMAP Colloquium PresentationPrescott CollegeNovember 9, 2008
3 MELTDOWN WHAT ARE: MORTGAGE-BACKED SECURITIES COLLATERAL MORTGAGE OBLIGATIONS (COLLATERAL DEBT OBLIGATIONS)CREDIT DEFAULT SWAPSHEDGE FUNDSAND WHAT ARE THEY DOING IN MY HOUSE?WHAT ROLE DO THEY PLAY IN THE LARGER POLITICAL ECONOMY?WHAT DO THEY HAVE TO DO WITH A POLITICS OF SUSTAINABILITY?
4 The dialectic of housing: capitalist commodity & sustainable shelter Housing as commodity in Capitalism* Ideology of homeownership (private property)* Privileging of homeowners (winners & losers in the market)Housing as human need for shelter* Housing as space within which psychological life takes place* Housing as major component of our ecological fooptrint
6 HOUSING IS…The physical space where we become who we are, where our psychological lives take placeOften the site of our greatest loves, happiness, hatreds and lossesThe determinant of other opportunities or barriers in our lives
7 HOUSING IS…Our shelter from nature, our protection from nature’s elementsA major factor in our ecological and carbon footprint – through size of house, siting, density, materials, etc.
8 HOUSING IS…A commodity that is bought and sold in a capitalist market place that requires winners and losersIs a market that has failed yet is not questioned by either dominant or non-dominant groupsWas the trigger for both an accumulation boom and the present financial crisis
9 A LITTLE HISTORY TO SET THE SCENE History of privilege for property ownersJohn Adams“Is it not true...that men in general, in every society,who are wholly destitute of property, are… toodependent on other men to have a will of their own?….very few men who have no property, have anyJudgment of their own.”Homeowner privilege is embedded in our national ideology
10 From the revolutionary war to the Great Depression Owning property was necessary to vote until late 19th century (for men)Homesteading was policy to keep returning Civil War soldiers from creating problems when they couldn’t find workHomeownership at the beginning of 1930s was 40%. Required 50% downpayment with 5 year terms
11 BIG DEPRESSION – BIG CHANGES Home Owners Loan Corporation (HOLC)Federal Housing Administration (FHA)Fannie MaeGot housing construction up and running but created: “… the illusion of ownership through the reality of debt”
12 FANNIE MAE (and then FREDDIE MAC) Set up to expand pool of money available for home loansBought loans from selected lenders (who lend according to FM criteria)Pooed the loans into Mortgage-Backed Securities (earlier on were bonds, more recently were the riskier products)Uses income to buy more loans from banks
13 Results….. Housing markets were stabilized Housing construction started to rebound at end of DepressionHomeownership would become possible for large numbers of AmericansWas part of Keynesian approach that used government spending to jump-start economic activity and growth (US prepared for and entered WWII which effectively ended Depression)
14 WHO NEEDS SUSTAINABLE? WE’VE GOT SUBURBIA….. After WWII, US had: Land Intact productive capacityA finance system for private homeownershipLots of young people looking for jobs and housingAlso:The knowledge that if all these weren’t used effectively, the nation would retreat back into depression.
15 Elements of Suburbia……or a “little box” of unsustainability New, single-family, detached homes built outside of the city (Levittown)Highways to connect them with one another and cities (National Highway Defense)Tax policies to support system:Mortgage interest deduction now usedDepreciation for new construction but not rehabLow gas taxes and destruction of trolley carsUS paid for new sewer construction only
17 All held together by: The Cold War Changes Provided ideological basis for military production that continued after WWII“American Way of Life” ideology contributed to consumption/increased productionChangesLoss of cities to suburbsBlack migration into cities – slums
19 WINDS OF CHANGE….1960s:Vietnam War (paid for on credit card through deficit spending)Civil Rights Movement and creation of Great SocietyBy 1968, Fannie Mae is privatized to take funding off the federal budget.Homeownership expands to 60%1970s:Long growth based on post-war production and cold war ideology endsStagflation (inflation and high interest rates .. 10% - 14%)OPEC Oil EmbargoFreddie Mac is formed to create “competition” for Fannie Mae
20 Birth of Neoliberalism… 1978 - 1980 Paul Volker appointed to Federal ReserveWithin months changes economic policy from fiscal approach to monetary control to “fight inflation” no matter what the cost to employment or government programs (Followed by Greenspan in 1987 who continued same policies)Margaret Thatcher is elected Prime Minister in Great BritainClaimed mandate to curb power of trade unions; coins TINA “There is No Alternative” to global corporate powerRonald Reagan is elected President in United StatesWithin months breaks large PATCO union, proposes deregulation of industry, agriculture, resource extraction; “liberates” the powers of financeAlso known as “Washington Consensus”
21 The Big Shift: :De-industrialization occurs as production goes overseas and capital accumulation moves to financial sector.Income gap starts to widen even as productivity increasesHouseholds maintain standard of living through massive entry of women into workplaceHomeownership rate goes flat – stays flat, see beginnings of larger scale homelessness (bag ladies)Ideology of neoliberalism cemented with fall of Soviet Union – Seen as evidence of TINA
22 Financial Crisis I Deregulation of S & L’s. No longer limited to home mortgages, begin wider, riskier investments, including overseas.Banks no longer required to only lend in mortgages the equivalent of their deposits“Disintermediation”S&L’s go too far, make risky dealsMany fail – are bailed out.Properties foreclosed go into Resolution Trust Corporation
25 TOIL & TROUBLE, BOIL & BUBBLE…. 1990 - 2000 Income gap widensHomeownership rate remains flat at 64%Homes increase in size (1990 average: 1500 sq.ft., 2000 average: 2100 sq. ft.)Levittown exchanged for McMansionDot-com boom & bustAsian financial crisis
26 END THE CENTURY WITH A BANG… 1999: Congress passes Financial Services Modernization Act which repeals Glass-Steagall Act of 19332000: Congress passes the Commodities Futures Modernization Act (added to the spending bill in 12/00, the last bill before Bush takes office) and repeals earlier laws outlawing Bucket Shops (betting).
27 Financial Services Modernization Act (repeals Glass-Steagall) 1999 Glass Steagall (was really two acts)Established FDIC (insure deposits)Separated banks according to type (Commercial banks vs. investment banks)Intended to bring transparency and accountability to financial sector to prevent a run on the banks like occurred inFirst merger after repeal is Travelers Insurance and CitiBank (became CitiGroup).
28 COMMODITIES FUTURES MODERNIZATION ACT 2000 Repeals 1922 legislation that outlawed “Bucket Shops” (off-site betting establishments that took bets on prices of commodities – “commodities bookies”)Specifically prevented states from passing any legislation limiting this type of bettingPassed as part of last spending bill under Clinton, last bill to be signed before Bush inaugurated.
30 A perfect match for the new millennium 1990s had offered capital accumulation a recession, dot-com bubble and bust.nowA perfect match for the new millenniumCapital looking for safe accumulation homePension funds, local governments, 401(k) managers – a “Giant Pool of Money”Homeownership rates stagnant since 1960Widening income gap in 1980s – 1990s made ownership harder to achievePerfect Match – invest in homeownership!!
31 INTRODUCING…. THE PLAYERS Brokers Bankers (mortgage lenders) SecuritizersInvestorsBorrowers
32 THE BROKERS… Unlicensed, not regulated Represented the lenders, not the buyers (different than 30 years ago)No investment of their own (sold the loan usually within days)Incentive to sell high because fees based on size of loanDID NOT LEND THEIR OWN MONEY
33 THE BANKERS…..Includes mortgage companies (brokers may or may not work for them)Didn’t hold the loan, pooled it with others and sold them through to Wall StreetImportant note: Remember deregulation of the 1980s: banks (not mortgage companies) could only lend as much as they held in deposits. After deregulation, could lend larger amounts because they weren’t holding the loans.WERE NOT LENDING THEIR OWN MONEY
34 THE SECURITIZERS Operated as the go-betweens for banks and investors Took the bundles to Wall Street as “mortgage-backed securities”Got the bundles rated by bond companiesWere paid fees for bundling and selling packagesWERE NOT LENDING THEIR OWN MONEY
35 THE INVESTORS….. Bought the “security” – provided the money Got the money from places like pension funds, local governments, etc.That’s all – not so complicatedBut wait….
36 THE BORROWERS….Expanding the “ownership” society engendered new products that allowed formerly unqualified borrowers to become qualifiedSince everyone was unregulated, incentive to create new products was driven by loan system, not borrowers needsBorrowers pushed by ideology, desire & need for wealth accumulation, hedge against social insecurity
38 ANATOMY OF SUBPRIME LOAN Adjustable-rate interest with low introductory rate that balloons laterNo money down (NINA – No Income, No Assets) – “Liar’s Loans”Serial re-finance loansHome equity loansComplicated documents, several inches thickEveryone involved: brokers, real estate agents, appraisers, lendersAssumption was value would ALWAYS increase
39 SONS OF SUBPRIME… Collateral Debt Obligations (CDOs) MBS which have been separated out and re-packaged into “tranches” (slices).Although the subprime loans are in their own tranche, the way they are sold, the position of the investors (who gets paid first), lax oversight – and the assumption of a default rate based on prime loan history – allow the subprime CDOs to be rated high (AAA) for sale to investors.
40 Credit Default Swaps A type of “insurance” but completely unregulated Buyer of swap purchases the “right” to be paid if the underlying mortgage loans defaultOne investor buys swap “insurance”Seller re-sells the swap without knowledge of the first investor.By , credit swaps were for all sorts of loans (credit cards, auto loans, etc)Modern version of the “bucket shops” outlawed in 1922 and re-introduced in 2000.
41 Hedge Funds Investment vehicle Unregulated Buy whatever they want – usually risky, “exotic” securities.Became big in the late 1990sGot big enough that banks got into the actKnown for high returns, but this causes them to take greater risk, increasing exposure to systemic failure
42 And then….The first ARM interest rate increases on subprime loans started kicking in (2005) and people couldn’t pay the increaseSomeone lost their job and couldn’t pay a mortgage that was too highThe drip became a flood and created a negative feedback loop
43 MARCH – OCTOBER 2008Starting with Bear Stearns in March, through the receivership of Fannie & Freddie in July through the bankruptcy of Lehman Brothers in September.Late September:US government proposes $700 billion “bailout”.Starts as purchase of “toxic” MBSMoves into purchase of stockWill likely end up with re-working mortgage loans.
44 The ecology of housing: SHELTER PSYCHOLOGICAL SPACE COMMODITY
45 THE FINANCIAL CRISIS STEMS FROM A POLITICAL ECONOMY THAT Allows markets to dominate society instead of society dominating marketsIs dependent on growth and accumulation in these marketsCommodifies all things including nature, labor and social goods (in this case--shelter)Creates belief systems that support this economy as natural (“markets are the most efficient way of allocating goods and services”)
46 WHAT’S ON TAP… Stimulus package Tax code Health care Stop hemorrhage of foreclosures/revamp financial systemDeficit spending and national debtAnd…..overarching reality of climate change
47 OUR TEACHABLE MOMENTReplace the dominance of the “free” market with the dominance of planned cooperationCraft a new language, new frames and ideologies that both contest the existing order and outline another oneBuild new ‘pre-figurative’ models that help us see how a new social order can actually work.Don’t give up. It’s going to be a rough and exciting ride
48 Contact: Jan Breidenbach is Adjunct Associate Professor in the School of Policy, Planning and Development at the University of Southern California. She can be reached at