Since the recession began and the housing bubble burst, I have been following news about economic growth and educating myself in the intricacies of real estate and economic indicators (mostly job growth and vigorously following the rise and fall of stocks). The recession and the economy was the first inherited problem that Obama vowed to take on, even before we tacked on the word "administration." In his campaign, he promised to pass another stimulus bill that would help jumpstart the economy and put more people to work. The Bush administration had passed a similar stimulus bill that gave households a 300,600 or 1200 dollar check based on income and marital status. He also set up the Troubled Asset Relief Program (TARP) to stabilize troubled financial institutions (see Bear-Sterns, Lehman Bros., AIG, etc) All of this alienated Bush from many fiscal conservatives who would have rather cut services than spent more money, especially those seeing an imminent economic crises. Bush banked (no pun intended) on the idea that these checks would be spent to stimulate the economy and we would avoid a huge downturn. Of course, this money was mostly deposited into savings accounts or used to pay bills, or in my parents case, donated to the Obama campaign. So, when Obama came into office, the first major bill he signed was the Recovery and Reinvestment Act, which injected nearly 900 billion into the economy. Fiscal conservatives fought tooth and nail to get it reduced from its original 1 trillion dollar price-tag, and complained that Obama was going on a unregulated spending spree, which would translate into higher costs for the American people. They also believed that with government bailouts came government control, which is something much worse that simple business regulation. With the government (and the people) taking a financial stake in companies like GM, conservatives had a field day, bemoaning socialism in the Democratic party and lack of oversight in bailing out unsavory financial institutions.
What has happened since? Obama has defended his Stimulus Bill, which had wide support from his economic advisers, as well as my favorite economist, Paul Krugman. Obama has articulated to his opponents that the bill has a long term affect on it, and the economy will not see the full force of its spending power until at least 2010. But, the American people want recovery fast, and now, so they responded to the falling economy and job losses as a failure of the administration in its Stimulus bill. Unemployment remains at 9.7-9.8% and economists forecast it will hit 10% by 2010, and won't drop off until 2011. Job losses have slowed significantly and the stock market is nearing 10,000. Nontheless, jobs are being lost and the jump in the stock market is mostly due to strategic cost cutting and layoffs by companies, not forward moving growth and/or profit. The economy is recovering, but we will not see return to growth for another couple years.
But, what about the housing market? The bursting of the "housing bubble" caused house values to plummet, leading to mortgage defaulting and massive foreclosures. This mostly happened because of highly unethical practices by organizations like Countrywide in packaging high risk mortgages as securities and selling them off to firms like Fannie Mae and Freddie Mack. Of course, these high risk mortgages were a result of the late 90s idea that everybody should have access to a house. This involved the risky business of giving people with low credit "sweet deal"mortgage rates on housing. Someone with low credit who wanted a house could get one at a 3% starting rate. But, soon enough the mortgage rate went up, it was no longer possible to pay off the mortgage with just their salary. But, the house value had increase dramatically, so they borrowed against the equity of the house. Soon, enough they could not pay off their higher mortgage rate, and defaulted on their loans. Well, you can imagine what came next. All the defaults on these high risk mortgages packed as securities translated into crises with companies that invested in these securities, and we're left with trillions in mortgage debt until they were "bailed out" by the government. What would have happened if the government let some of these companies fail? Most likely, financial catastrophe, but here in my blogosphere, we don't deal in normative statements.
My feelings about giving everyone housing regardless of financial stability aside (I am against it...there, I said it, but you can't be mad at a government that uses deregulation and risky lending practices at a time of prosperity), I always asked myself about how the American Dream of owning a house turned into the crises we have today. In another post I explored the idea of credit, and how credit had evolved into the system it is today. The theme was that when people started identifying themselves with what they owned, they began to spend beyond their means because of the access to "pay-later" credit. This extended into not just the arena of appliances and possessions, but into the housing and automobile industries, and stock market loan practices (see Buying on Margin). All of this access to credit, along with investment of money into shattered economies abroad led to financial interconnectedness, and created an environment whereby failure would mean worldwide financial depression. And...you know happened in 1929.
How does this apply to the housing market? Well, it would be a misnomer to call it a market, if you lived in the mid 18th Century, when the idea of Manifest Destiny and the "American Dream" was in its infant stages. The first incarnation of the American Dream was a an idea that Americans would rule the continent from "sea to shining sea" and create a self-reliant, independent yeoman farmer nation, much like Thomas Jefferson had touted. To live in your own house, built by your own hand, on your own land was the fulfillment of the American Dream. So, the government tried to make that happen by facilitating easy access to land, through the Homestead Act, and the breakup of Native American lands through legislation like the Dawes Severalty Act (look them up). But, the American dream was transformed once new technology made it easier to access wealth with less work. But, one idea remained: Owning your own home. At the end of the 19th century, with the era of Big Business ("Gilded Age") and Railroads, people began to move into cities and worked in backbreaking jobs and lived in high rent, disease ridden tenements. Once a reform movement came along (Progressives) they promised to bring housing back to masses, or at least reform the tenements. Progressives pressured governments to sign reform bills, support cheap housing, beautify cities and facilitate access to recreation for the masses. Up until then, robber barons like Henry Clay Fricke, Andrew Carnegie, JP Morgan and John D Rockefeller owned large estates and restricted access to housing. By the time the depression arrived, many people lacked proper housing.
In the Depression era, a huge experiment in government took place. FDR's New Deal expanded the power of the government to attempt to pull the country out of the worst depression in its history. One of these programs was to have access to public, government provided housing. Started under the Regional Planning Association of America (RPAA) before the depression, efficient housing in the Fredrick Winslow Taylor model (Taylorism) was a necessary, especially for those who could not afford it. Into the depression, FDR set up the Federal Housing Administration (FHA) and Public Works Administration (PWA) Housing Division in order to streamline government supported housing. This was followed by the United States Housing Administration (USHA)who facilitated large successes in creating housing for the masses at a low cost. Regardless of their success, government-run housing was attacked by conservatives, who saw government intervention as inefficient socialism. In the post-war era, Senator McCarthy from Wisconsin set up Congressional hearings to analyze the condition of housing in the US. He used his congressional committee as a platform to attack public housing and praise the private industry as the true medium through which the country could solve its housing problem. With the passing of the GI Bill, and the construction of "model communities" and new suburbs, housing and education became accessible.Or, so it seemed.
At this point, the American Dream was a house in the suburbs. Of course, this dream was only available to White, Christians, as private housing organizations used redlining and racism to prevent minorities, Blacks and Jews from owning houses. Housing in the post-War era was much different than the "investment" that many saw as housing in the post-Cold War era. To have a house, a stable (white) family with a working father and a housewife mother was a necessary domestic bulwark against Communism. It was a social value more than a financial investment to have a house. Housing was cherished as something you could access, and pay off in about 20 years. A house was not something that a family invested in order to turn it over in a couple years to make money on their original investment. There was a social conscience that encouraged stability, not risk. It was an contradictory society, insomuch that encouraged conformity as a stable obstacle to...conformity. Regardless of the nuanced problems of Cold-War domestic ideology, there was a common enemy to work against, and stability in the home was a sure-fire way to contain that enemy. But, what happened when the myth of the Communist monolith was debunked? In my opinion, the protections given to home owners, coupled with a new generation of excess and greed (See the movie Wall Street) remade housing as just another investment. The richest people in the US became either the tech geniuses, or the real estate moguls. In the last decade, it was 4 times more likely to find someone investing in a house in excess of 2,000 square ft than it was in the 1970s. Housing was connected with financing and easy access to credit for people who recently could not afford mortgage payments allowed for a widespread, albeit unstable, housing market.
Like the instability caused by easy credit access in the Depression era, the instability in the housing market caused a financial crises. But, a recent article in the LA Times has articulated that point that this housing crises is not something that home owners will be able to bounce back from, easily. The article suggests that maybe it's time to return to the post-war era ideology that stability in the home is a pathway to stability in life, and that high risk investments, specially when one cannot possibly afford the consequences is foolish.
Healthcare Debate and Housing (Ooooh...a subtopic)
As promised in the title, I will make a comparison to the Healthcare debate. This is a historical comparison, and has to do with the attempt to build government backed public housing in the New Deal and Post-war eras. As mentioned in the above passages, FDR tried to encourage the growth of public government backed housing in during the Depression in order to give the masses access to affordable housing. This idea was attacked by many groups including the US Chamber of Commerce, National Association of Real Estate Boards and the Savings and Loan League, all who would benefit tremendously from a private housing market. They believed that once the government sold houses, it would come into competition with private industry and undercut progress towards efficient housing. They went so far as to say people would be discouraged from spending on mortgages if they knew the government was in the housing business. The government charged, after FDR's victory in 1937, that housing was a "perpetual social obligation" and that eradication of the slums and providing good housing for low income families was necessary. The government wanted to provide an alternative to private housing that would make sure cost would not be a deciding factor in gauging home quality and access. The government wanted to make housing a right for all Americans and the Real Estate Lobby wanted to encourage renting. They advertised that private companies could offer low cost housing for everyone, and government intervention would undercut competition to lower the cost of quality housing.
During the era, an experiment in cooperative housing became a source of awe. The Greenbelt housing cooperative created by and underwritten by the guidelines of the Resettlement Administration used cooperative business ventures (stores, shopping centers, markets) and a cooperative local government model to create a self-sufficient town model, on a small budget. According to Rosalyn Baxandall and Elizabeth Ewen, authors of "Picture Windows" the cooperative encompassed every aspect of life including preventative medical care, transportation, citizen's associations, baseball teams, newspapers and even a credit union. But this successful experiment was ignored by private housing advocates.
In the post-war era, under the Truman administration, the government passed the Taft Ellender Wagner Act (TEW), which was a conglomerate of New Deal legislation to provide housing for people who the private industry could not assist without taking a profit loss, which made them prime for public assistance. Before he became the Communist witch hunter, Senator Joseph McCarthy from Wisconsin had a hearing on housing. He used his position as chairman of the Housing Committee to attack public housing and discredit TEW. He made several highly publicized visits to public housing complexes and declared them decrepit, and a breeding ground for socialists and communists. He showed his bias by giving public housing advocates less time to testify during hearings than private industry analysts. The private housing industry put on a campaign that highlighted the "socialist dangers" of public housing. As "Picture Windows" states, they put out fliers, leaflets, petitions and cartoons to create the illusion that there was a grassroots campaign against public housing. They chose to forget that this grassroots campaign was underwritten and highly organized by the Real Estate Lobby and Savings and Loan, who were both private housing advocates. Private housing advocates also chose to ignore the fact that many private housing companies had failed to provide adequate housing for everyone, especially at a time when home ownership was defined with containment of communists. Lastly, private industry was hell bent on removing government from housing, but they still supported government subsidies to home owners in order to obtain housing. In other words "the real estate interests wanted government out of the construction end of housing, but they were happy to be eating out of the hidden hand of government." (Picture Windows, 114).
Does this all sounds familiar? A system in need of reform is co-opted by the government to provide access to that system because widespread access is an "inherent right." But, government intervention in that said system leads to "socialism" and inefficiency, even though the current system does not provide that service efficiently anyways. And, there is a so-called "grassroots" protest against such an intervention, which is really underwritten by conservative politicians who are against a government role in that system. And, it has been repeated over and over again that the system is an alternative to the public system, whose abuses do not provide services to low income individuals. But, those against a public option in that system are happy to be using a government supported idea, even though they decry that government in the first place. Oh yah...there is also an idea to provide experiments in cooperatives in that system.
Am I being too vague? Is the comparison not extremely obvious?
Government run housing is not so glamorous, now. Just take a look at the projects in NY City or Public Housing in Detroit or East LA. People live in it, but the neighborhood is violent prone, and the quality of housing is low. But, that is because we are willing, without the blink of an eye, or the opening of a history book, to cut funding to public initiatives once a crises caused by unregulated private industry hits us in the pocketbook. We hold on to the idea that private industry is the end all, and that everything else, especially if its government run is inherently inefficient. But, at the same time we need government spending to increase because private industry cannot give universal access to basic rights. Just look at how people hate the idea that the government would ever touch their Medicare.
Is it a sure fact that any government intervention into a highly privatized industry means undercutting of competition, and ultimately more government growth to bolster that industry? Is there any role for government in private industry? What would private industry look like without any government regulation? Can we have a private industry whose services are deemed universal for all Americans, provide those services efficiently without government assistance?
There may never be a clear cut answer to any of these question. But, one thing for sure is that America will never lose its contempt for the government.
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