The Black Hole at the Pit of the Economy
Disturbing numbers being reported from the housing sector are a reminder that America is in real danger of a Lost-Decade-of-Japan kind of situation if we don’t do something serious about the ground zero of our economic collapse: Wall Street. There are a wide variety of serious long-term issues that we have to deal with in order to reverse the decline of America’s middle class — rebuilding our manufacturing sector and infrastructure, strengthening the labor movement so that middle-class wages begin rising again, breaking up the concentrated economic power in sectors like banking and insurance, and restoring our tax base by making sure wealthy individuals and corporations are paying their fair share would be my top four long-term priorities to achieve this goal — but in the short run, we cannot fix our economy without taking on the big Wall Street banks and making dramatic changes to revive the housing sector. Three different sets of numbers on housing caught my eye this morning: 1. The percentage of homeowners with underwater mortgages — where the value of a mortgage exceeds the value of the property — has now climbed to 28.4 percent. It has been at around a quarter of all (single-family) home mortgages, but is continuing to climb, edging closer to a third. This is a truly stunning number, especially when you consider how many homeowners are in their second or even third decade of paying off their mortgage. 2. Housing prices continue their decline, in fact scoring their biggest quarterly drop since the crash months in 2008 . Home values have declined a net 29.5 percent since their peak in 2006, and after a modest increase after the 2008 crash, started declining again last fall and are now at their lowest level, making them equal to the bottom point of the crash. And analysts expect them to continue to fall for another year at least. 3. A new report out by National People’s Action shows that one out of ten homes in Cleveland, Columbus, and Cinncinnati will have received a foreclosure notice since the housing crisis began. Those are depression-level numbers, and I expect they parallel other hard hit states like MI, FL, and NV. Where the housing crisis is at its worst, we are seeing economic devastation on a massive scale. All of this adds up to terrible news not just in the housing sector but in the rest of our economy as well. Homes represent the No. 1 source of wealth and equity for middle-class Americans, and their best chance for having some kind of decent retirement. Being secure in your home equity makes people far more likely to start a small business, and far more likely to have the confidence to buy the other consumer items that make the economy hum. And home prices are cyclical, in the sense that bad news for your neighbor in terms of a foreclosure usually means bad news for your home value. This is not a dramatic, high-profile issue, but it is a simple fact that until we do something big to solve the housing crisis, this economy is going to stay stagnant. But it can only be done by taking on the banking industry directly. As we learned during the financial crisis, government has a lot of regulatory tools at their disposal, and with passage of last year’s financial reform bill, they now have more. The Treasury Department, the other financial regulatory agencies of federal government, the U.S. Justice Department, the state Attorneys General, state legislators like those in California considering a bill forcing bankers to pay all the costs of foreclosures, all have the power to do far, far more to force bankers to start writing down mortgages and giving some relief to homeowners. Bankers have too much hoarded money, and too much political power. They have had the power to gamble trillions of dollars of other people’s money, buy off the rating agencies, and then get bailouts with no strings attached when everything went south. They have had the power to play fast, loose, and sloppy with hundreds of years of real estate law, and leave homeowners holding the bag. They have had the power to blatantly rip off Main Street businesses and consumers with a swipe fee industry that had no regulation up until last year’s financial reform bill. They have had their way with lawmakers and regulatory agencies of both parties. But if we started standing up to them, we would give a very big boost to this badly damaged economy. Swipe fee regulations and forcing mortgage write downs would pump scores of billions of dollars directly back into our economy, and have a huge multiplier effect. Given that Congress isn’t going to consider any kind of fiscal stimulus, and is in fact pursuing Hoover-style belt tightening policies, taking on the banks is the best economic policy we could have. We are facing some huge long-term issue battles in the coming months. Republicans are trying to do away with Medicare, Medicaid, the safety net, labor unions — basically the entire set of progressive achievements of the 20th Century. Those incredibly important fights are getting all the attention they deserve. But if we don’t do something in the very short term to break the stranglehold the Wall Street banks have on our economy’s throat, the black hole will swallow any prospect for a strong economic recovery.
The Black Hole at the Pit of the Economy
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on May 9, 2011. Filed under