Many people gambled on the Housing Market. They bought more house than they could afford. If price increases had continued for just a few more quarters, many of them might have been able to sell out before the teaser rate reset...then they would have reaped huge profits. In the majority of cases, the profits would have been tax-free -- because they are proceeds from the sale of a primary residence.
Some people were cheated by lenders into taking on these loans. Others were forced to do so by hard economic times.
What should a Progressive response to the crisis be? More follows...
First: Catch the Criminals
A part of sub-prime mess is due to criminal behavior. People were lied to, cheated, and stolen from. In some cases loan documents were forged, appraisers submitted fake reports, and slick salesmen lied about loan terms to unsophisticated borrowers. People who were victims need to call the FBI. The criminals need to be caught (the scumbags are easy to find...their names are on the loan docs) and punished. Victims -- and victims only -- should be eligible for relief.
But I’m not writing about victims here. I’m writing about people who knowingly borrowed money and now can’t pay it back.
Second: Avoid Bailouts
I want to first say that I could care less about "preserving the sanctity of the Free Market" or about any sort of Libertarian Hogwash.We need to avoid bailouts for four reasons:
- Bailouts will mostly reward speculators and re-financers rather than first-time buyers. Less than 15% of these loans were to first-time homebuyers. The rest of these loans were to investors and people who re-financed and used the cash to buy stuff.
- Bailouts will prop up house prices. Most poor people in the US still don’t own homes. How will we get them to become Homeowners if we keep propping up prices so they remain out-of-reach?
- Poor people with bad credit got a lot of these loans. We do not want to punish non-criminal lenders for "taking a chance" on people who, usually, can’t get any credit at all.
- The bailouts would suck up financial resources and political capital that could be used for actually helping poor people own houses.
Some bailout schemes to watch out for:
- Using public money to "gauruntee", pay-off, supplement, or cover costs of existing loans: Basically giving taxpayer money to the lenders to cover their bad business decisions.
- Changing the terms of mortgages after-the-fact: Arbitrarily lowering rates, reducing collateral rules, etc. Changing the deal after the papers are signed will make lenders very wary of ever loaning to poor people again.
- Government loans, or government-backed loans to sub-prime homeowners: This is a good idea, but
only if we let new homebuyers who sat out the bubble have access to these loans as well. These loans should be means-tested...only poor and middle-class people should be able to get them.
Third: Stay Progressive, Stay on Message
The housing bust is going to be a big political issue that is going to affect a key voting bloc: Homeowners. I understand that there will be strong political reasons to support bailouts of one form or another. But we need to do our best to remember Progressive ideals when we shape this debate.
We need to keep the conversation focused on:
A) Punishing Corporate Criminals: Brokers and Corporations who lied and stole need to be hunted down. Where are the perp-walks of Bankers and Loan Salesmen? This mess is a huge Corporate Crime issue and needs to be addressed as such.
B) Housing Affordability: Let’s not get stampeded by those who wail that price declines ("crash" is the meme being pushed by the Corporate Media) are necessarily bad. Many prudent working-class families chose to sit out the bubble and not buy overpriced real estate that they couldn’t afford. Lower prices mean more homeowners in the long run. This is what we want, right? Now is a great time to roll out subsidies for poor people to buy homes and expansions of Federal loan programs.
C) Protecting the Middle Class: Anecdotes abound of families who were "forced" into taking a home equity loan to pay for Medical Care, College, or to support themselves because they got laid off. We must not let anyone confuse this issue. The problem is not the loan – it is the lack of Universal Healthcare, Education Funding, and Job Security in America. These are core Progressive issues and we must not let them be hidden behind the "sub-prime crisis".
D) How "The Market" Failed...Again: Once again, we have yet more proof that loosely-regulated "Free Markets" are train wrecks waiting to happen. The blame for this rests on the faith-based economic policies of the Ayn Rand/Alan Greenspan/Club-for-Growth set...and we need to call them on it. For starters we should remind voters to be thankful that we stopped Bush from "privatizing" Social Security...if you think a Housing Market bust is painful, imagine if we had let "The Market" wreak havoc on our Retirement as well...but I digress.
Conclusion
Mass bailouts and blanket re-structurings are not the answer. We need to target relief to fraud victims and working people only. Any support of the Housing Market should be done by subsidizing poor people to buy homes, rather than rewarding those who overextended.
This crisis is a chance to make changes for the better, and we need to step up with long-term Progressive solutions rather than a short-term Bailout Mentality.