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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.

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Presentation on theme: "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."— Presentation transcript:

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2 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 SUSTAINABILITY Jan Breidenbach MAP Colloquium Presentation Prescott College November 9, 2008

3 MELTDOWN WHAT ARE: MORTGAGE-BACKED SECURITIES COLLATERAL MORTGAGE OBLIGATIONS (COLLATERAL DEBT OBLIGATIONS) CREDIT DEFAULT SWAPS HEDGE FUNDS AND 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

5 THE THREE DIMENSIONS OF HOUSING

6 HOUSING IS… The physical space where we become who we are, where our psychological lives take place Often the site of our greatest loves, happiness, hatreds and losses The determinant of other opportunities or barriers in our lives

7 HOUSING IS… Our shelter from nature, our protection from nature’s elements A 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 losers Is a market that has failed yet is not questioned by either dominant or non- dominant groups Was 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 owners – John Adams “Is it not true...that men in general, in every society, who are wholly destitute of property, are… too dependent on other men to have a will of their own? ….very few men who have no property, have any Judgment 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 19 th century (for men) Homesteading was policy to keep returning Civil War soldiers from creating problems when they couldn’t find work Homeownership 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 Mae Got 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 loans Bought 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 Depression Homeownership would become possible for large numbers of Americans Was 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 capacity A finance system for private homeownership Lots of young people looking for jobs and housing Also: 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 used Depreciation for new construction but not rehab Low gas taxes and destruction of trolley cars US paid for new sewer construction only

16 Levittown

17 All held together by: The Cold War Provided ideological basis for military production that continued after WWII “American Way of Life” ideology contributed to consumption/increased production Changes Loss of cities to suburbs Black migration into cities – slums

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19 WINDS OF CHANGE…. 1960s: Vietnam War (paid for on credit card through deficit spending) Civil Rights Movement and creation of Great Society By 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 ends Stagflation (inflation and high interest rates.. 10% - 14%) OPEC Oil Embargo Freddie Mac is formed to create “competition” for Fannie Mae

20 Birth of Neoliberalism… Paul Volker appointed to Federal Reserve Within 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 Britain Claimed mandate to curb power of trade unions; coins TINA “There is No Alternative” to global corporate power Ronald Reagan is elected President in United States Within months breaks large PATCO union, proposes deregulation of industry, agriculture, resource extraction; “liberates” the powers of finance Also 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 increases Households maintain standard of living through massive entry of women into workplace Homeownership 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 deals Many fail – are bailed out. Properties foreclosed go into Resolution Trust Corporation

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25 TOIL & TROUBLE, BOIL & BUBBLE… Income gap widens Homeownership rate remains flat at 64% Homes increase in size (1990 average: 1500 sq.ft., 2000 average: 2100 sq. ft.) – Levittown exchanged for McMansion Dot-com boom & bust Asian financial crisis

26 END THE CENTURY WITH A BANG… 1999: Congress passes Financial Services Modernization Act which repeals Glass- Steagall Act of : 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 in First 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 betting Passed as part of last spending bill under Clinton, last bill to be signed before Bush inaugurated.

29 Bucket shop

30 1990s had offered capital accumulation a recession, dot-com bubble and bust. now A perfect match for the new millennium Capital looking for safe accumulation home Pension funds, local governments, 401(k) managers – a “Giant Pool of Money” Homeownership rates stagnant since 1960 Widening income gap in 1980s – 1990s made ownership harder to achieve Perfect Match – invest in homeownership!!

31 INTRODUCING…. THE PLAYERS Brokers Bankers (mortgage lenders) Securitizers Investors Borrowers

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 loan DID 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 Street Important 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 companies Were paid fees for bundling and selling packages WERE 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 complicated But wait….

36 THE BORROWERS…. Expanding the “ownership” society engendered new products that allowed formerly unqualified borrowers to become qualified Since everyone was unregulated, incentive to create new products was driven by loan system, not borrowers needs Borrowers pushed by ideology, desire & need for wealth accumulation, hedge against social insecurity

37 THE VILLAIN…. SUBPRIME LOANS

38 ANATOMY OF SUBPRIME LOAN Adjustable-rate interest with low introductory rate that balloons later No money down (NINA – No Income, No Assets) – “Liar’s Loans” Serial re-finance loans Home equity loans Complicated documents, several inches thick Everyone involved: brokers, real estate agents, appraisers, lenders Assumption 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 default One 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 1990s – Got big enough that banks got into the act – Known 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 increase Someone lost their job and couldn’t pay a mortgage that was too high The drip became a flood and created a negative feedback loop

43 MARCH – OCTOBER 2008 Starting 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” MBS Moves into purchase of stock Will 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 markets Is dependent on growth and accumulation in these markets Commodifies 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 system Deficit spending and national debt And…..overarching reality of climate change

47 OUR TEACHABLE MOMENT – Replace the dominance of the “free” market with the dominance of planned cooperation – Craft a new language, new frames and ideologies that both contest the existing order and outline another one – Build 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


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