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homeownership
Wall Street to Working-Class Homebuyers: Fuggeddaboutdit!
Building a movement to stop Wall Street’s insatiable greed starts with labor unions, like the United Auto Workers, that have shown the willingness to take on corporate power, not only to protect their own members, but also to enhance the working class as a whole.
Feb 28, 2024
Purchasing a home is usually the only pathway for the working class to accumulate a bit of wealth. Today, working-class home-buying is increasingly out of reach. Housing rent inflation also remains stubbornly high, further squeezing working people, as well as causing the Federal Reserve to fret about why inflation isn’t falling faster.
While economists hunt for technical explanations, they ignore the ways in which Wall Street has come to dominate the housing market to the detriment of working people. The real story is about how our two major political parties have sold out to financialized capitalism.
In 2008 Wall Street crashed the housing market, by profiting wildly from unregulated artificial mortgage-backed bonds. When that house of cards collapsed, they were bailed out with our tax dollars. Then, Wall Street rushed in to buy up housing assets on the cheap, turning them into rentals and profiting yet again from the very mess it had created. And now the working class is being squeezed out of the homeowner market and paying more and more for rentals.
It wasn’t always this way. Following the crash of 1929, caused by massive financial malfeasance, the New Deal ushered in a strong regulatory regime to control the inherent greed of the banking and securities businesses. For 25 years after those stiff regulations went into effect, the standard of living for the working class steadily increased and there were no Wall Street implosions.
The real story is about how our two major political parties have sold out to financialized capitalism.
Those regulations held until the Reagan and Clinton administrations removed many of the guard rails intended to constrain the ability of financiers to manipulate and threaten our economy. Financial recklessness and greed once again were given free rein. By 2008, Wall Street had thoroughly crashed the economy, leading to six million jobs lost in a matter of months.
I gave the crash a good look in my book, The Looting of America. The machinations of Wall Street in the early part of this century involving the housing market were beyond belief. Freed from all serious oversight, large banks and financial firms believed they had engineered a financial miracle – taking all the risk out of high-risk mortgages. They created artificial investment products that the trusted credit rating agencies assured us were as good as gold. Rated AAA, they said.
Sub-prime mortgage-backed securities, built repeatedly upon the same risky mortgages, promised big safe profits, and sold like hot cakes. When those risky mortgages inevitably failed, so did the supposedly safe securities, and the whole system crumbled.
Incredibly, at the same time, some of the richest Wall Streeters created financial products designed to fail, so that they could bet against them. They made billions!
This is the type of garbage that led to the 1929 crash and the Great Depression. In 2008 it was called the Great Recession. Economic devastation, fueled by unregulated banks and securities firms, happened again.
Bailouts for Wall Street, Pitchforks for Main Street
The damage done was so great that the government used taxpayer money to bail out the financial bandits, fearing that if they didn’t the whole economy would collapse into another Great Depression. None of the financial criminals went to jail. Very few suffered serious financial harm. But with the collapse of the housing market millions of homeowners were left with underwater mortgages. The only bailout for them was bankruptcy and ruination.
The country was angry, and this disaster created the perfect opportunity to reregulate Wall Street so that it served the American people, not the other way around.
President Obama, in 2009, understood the public fury aimed at the high salaries that the financial titans had the gall to award themselves even as they were accepting taxpayer support. The CEOs argued that they still needed to pay top dollar for executives during the bailout because, “We’re competing for talent on an international market.”
Obama warned, “Be careful how you make those statements, gentlemen. The public isn’t buying it.” Then he made a telling concession: “My administration is the only thing between you and the pitchforks.”
Obama never channeled the popular anger to bring Wall Street to heel. Instead, that fury energized the Tea Party, which turned the attacks away from Wall Street and towards the government itself. That was the fury Trump rode to power.
Meanwhile, the banks grew larger, richer, and more concentrated than ever. Today the top five banks own more banking assets they had before the 2008 crash. More worrisome yet is that hedge funds and private equity companies, which are far less regulated than banks, now hold more than $25 trillion in assets, making them larger than all of commercial banking.
What to do with all that money? Go after the housing market again!
Due to Wall Street’s financial implosion and the mortgage crisis, housing prices collapsed after the 2008 crash. Big money institutions rushed in and bought up as much housing as possible. No regulator, no political party, no movement stopped them from exploiting the crisis Wall Street itself had created.
Smack in the middle of the financial crisis in New York City, private equity companies had the chutzpah to buy thousands of apartment buildings, hoping to jack up stabilized rents as soon as tenants moved out. To move things along, these new owners applied a bit of pressure. “Tenants have been sued repeatedly for unpaid rent that has already been received by the landlords; they have been sent false notices of rent bills, lease terminations and non-renewals; and they have been accused of illegal sublets,” reported Gretchen Morgenson in the New York Times.
Now, after 15 years of Wall Street housing purchases, regular home buyers are getting squeezed out of the market. About 20 percent of all home purchases in the third quarter of 2022 went to corporations that owned more than 100 properties, with half of the Wall Street buyers owning more than 1,000. If you need a mortgage to buy a home you are likely to lose out to the big boys.
“They are, by definition, cash buyers. They don’t have mortgages; they don’t have contingencies; they’ve got briefcases full of cash, ready to go,” reports CoreLogic data.
In the Bradfield Farms subdivision in Charlotte, North Carolina, in 2021-22, fifty percent of the homes were bought by investors with cash and turned into rentals, according to an investigation by the New York Times. And we wonder why it’s so hard for young working people to purchase a home.
There ought to be a law.
After fifteen years of abuse, politicians are finally taking notice. Two Democratic legislators from North Carolina, Jeff Jackson and Alma Adams, recently introduced the American Neighborhoods Protection Act, which would require a corporate owner of more than 75 single-family homes to pay an annual $10,000 fee per home into a trust fund to help family buyers with down-payments. But, in the divided Congress, this bill isn’t going anywhere.
Why wasn’t it presented, one wonders, when the Democrats were in full control? Maybe because if it was pushed forward, Democrats would have to choose between placating Wall Street or defending working-class homebuyers. Hmm, which way do you think they would go?
It is time to wake up to what Wall Street is doing to us.
But we shouldn’t just be angry at the politicians who have coddled Wall Street for 40 years in exchange for campaign contributions (and lucrative financial jobs after leaving public office). We need to look at ourselves and our collective organizations.
In 2008, Wall Street was on its knees begging for support. The financial barons were at their weakest point since the Great Depression. To extract serious financial reforms, we needed a mass movement that united labor unions with the many community and environmental groups around the country. It didn’t happen.
It is time to wake up to what Wall Street is doing to us. Not only did it crash the economy in 2008. Not only does it now control more and more of the housing market, but it is also destroying the lives of working people through mass layoffs. As Wall Street gorges itself on stock buybacks, (another result of deregulation in 1982), 30 million of us have lost our jobs in mass layoffs, jobs often sacrificed as corporations pay for those buybacks Wall Street demanded. (Please see Wall Street’s War on Workers for more about this.)
Building a movement to stop Wall Street’s insatiable greed starts with labor unions, like the United Auto Workers, that have shown the willingness to take on corporate power, not only to protect their own members, but also to enhance the working class as a whole.
A new movement could be built around leaders like UAW president Shawn Fain, who recently said: “Billionaires, in my opinion, don’t have a right to exist.”
That the anger and energy of indignation is still out there, waiting to coalesce and aim at taming Wall Street’s insatiable greed. We should join with Fain and other progressives to mobilize and harness it now.
Sooner would be much better than waiting for the next crash.
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Why Rudy Giuliani Can Declare Bankruptcy While Homeowners Can’t
Bankruptcy was designed so people could start over, but these days, the only ones starting over are those with enough political clout to shape bankruptcy laws to their liking.
Dec 29, 2023
Within days of a nearly $150 million judgment against former New York Mayor Rudy Giuliani for defaming Ruby Freeman and Shaye Moss, the election workers Giuliani falsely claimed stole the 2020 election in Georgia for President Joe Biden, Giuliani filed for bankruptcy.
He thereby shielded himself from having to surrender his assets to fulfill the judgment, at least in the near term.
The long term may be quite long. Freeman and Moss may not see a penny of that judgment for many years, and when they do, it’s likely to be far less than $150 million.
The prevailing myth that America has a “free market” existing outside and apart from government prevents us from understanding that the very rules by which the market runs—including the basic one about what to do when someone can’t or won’t pay what they owe—are made by lawmakers.
One of the most basic of all questions in a market economy is what to do when someone can’t pay what they owe. The U.S. Constitution (Article I, Section 8, Clause 4) authorizes Congress to enact “uniform Laws on the subject of Bankruptcies throughout the United States.”
Congress has done so repeatedly. In the last few decades, Congress’ changes have reflected the demands of the wealthy, giant corporations, and Wall Street banks, which have made it harder for average people to declare bankruptcy but easier for themselves to do it.
Many people are too broke to go bankrupt. Filing for bankruptcy costs money, as does hiring an attorney (which is the best way to make sure you actually get debt relief). Because attorney fees, like other debts, are wiped out in a bankruptcy, most bankruptcy lawyers require clients to pay in full before filing.
In an economy where nearly half of adults say that if they were hit with an emergency expense of $400, they wouldn’t have the cash on hand to cover it, large numbers of people simply can’t afford those upfront costs.
The 2005 bankruptcy bill pushed by Wall Street worsened the problem. To prevent people from cheating their lenders, the bill put new burdens on debtors and their lawyers. The extent of such abuses was questionable, but the new requirements have driven up attorney fees nationwide by about 50%. The result? Even fewer filings.
Bankruptcy was designed so people could start over. But these days, the only ones starting over are those with enough political clout to shape bankruptcy laws to their liking, and enough money to hire bankruptcy lawyers to use those laws to their full advantage.
On the opening day of Trump Plaza in Atlantic City in 1984, Donald Trump stood in a dark topcoat on the casino floor celebrating his new investment as the “finest building in the city and possibly the nation.”
Thirty years later, after the Trump Plaza folded, Trump was on Twitter praising himself for his “great timing” in getting out of the investment. He got a giant tax write-off, too.
But some 1,000 of his former employees were left holding the bag—without jobs, and with homes worth a fraction of what they paid for them. They couldn’t declare bankruptcy. Chapter 13 of the bankruptcy code—whose drafting was largely the work of the financial industry—prevents homeowners from declaring bankruptcy on mortgage loans for their primary residence.
The Granddaddy of all failures to repay occurred in September 2008 when Lehman Brothers went into the largest bankruptcy in history, with more than $691 billion of assets and far more in liabilities.
Some commentators (including yours truly) urged that the rest of Wall Street should be forced to grapple with their problems in bankruptcy, too.
But Lehman’s bankruptcy so shook the street that Henry Paulson Jr., George W. Bush’s outgoing secretary of the treasury (and, before that, head of Goldman Sachs), persuaded Congress to authorize several hundred billion dollars of funding to protect the other big banks from going bankrupt.
Paulson didn’t explicitly state that big banks were too big to fail. They were, rather, too big to be reorganized under bankruptcy—which would, in Paulson’s view, have threatened the entire financial system.
The real burden of Wall Street’s near meltdown fell on homeowners. As home prices plummeted, many found themselves owing more on their mortgages than their homes were worth and unable to refinance.
Some members of Congress tried to amend the bankruptcy law so distressed homeowners could use bankruptcy, which would have helped prevent the banks from foreclosing on their homes. But the financial industry (among the largest donors to both parties) claimed this would greatly increase the cost of home loans (no convincing evidence showed this to be the case), and the bill died.
Subsequently, more than 5 million people lost their homes.
Another group of debtors who can’t use bankruptcy to renegotiate their loans are former students laden with student debt.
Student loans are now about 10% of all debt in the United States, second only to mortgages and higher than auto loans and credit card debt. But the bankruptcy code doesn’t allow student debts to be worked out under its protection.
If graduates don’t meet their payments, the law allows lenders to garnish their paychecks. If they are still behind on student loan payments by the time they retire, lenders can even garnish their Social Security checks.
The only way graduates can reduce their student debt burdens—according to a provision enacted at the behest of the student loan industry—is to prove that repayment would impose an “undue hardship” on them and their dependents.
This is a stricter standard than bankruptcy courts apply to gamblers trying to reduce their gambling debts.
For years, Purdue Pharma, the maker of the prescription painkiller OxyContin, was entangled in civil lawsuits seeking to hold it accountable for its role in the spiraling opioid crisis.
A major settlement reached last year seemed to end thousands of those cases. It exempted members of the billionaire Sackler family, which once controlled the company, from all civil lawsuits in exchange for billions of dollars toward fighting the epidemic (although aware of OxyContin’s risk for abuse, members of the family had continued to aggressively market it).
Under the deal, the Sacklers do not have to personally declare bankruptcy and are insulated from liability even without the consent of all of those who could potentially sue them. (The Supreme Court has taken up the case.)
The prevailing myth that America has a “free market” existing outside and apart from government prevents us from understanding that the very rules by which the market runs—including the basic one about what to do when someone can’t or won’t pay what they owe—are made by lawmakers.
The real question is whose interests those lawmakers are pursuing. Are they working for the vast majority of Americans, or are they beholden to those at the top? The recent history of bankruptcy—right up to Rudy Giuliani’s use of it last week—provides a clear answer.
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60 Years After the March on Washington, the Black-White Wealth Gap Is Still Too Wide
To act today, based on the fierce urgency of now, we must make the investments to eliminate racial disparities within one generation.
Aug 28, 2023
It’s now been 60 years since the March on Washington for Jobs and Freedom—and the Reverend Martin Luther King, Jr.’s “I Have a Dream” speech.
At the rally, Dr. King famously proclaimed that all people, Black as well as white, have a “promissory note” from their government guaranteeing “the inalienable rights of life, liberty, and the pursuit of happiness.” He lamented that “America has defaulted on this promissory note” to Black citizens.
Six decades later, despite incremental progress on some fronts, the check has still come back marked “insufficient funds.” But with enough political will, we can clear it quickly. That’s the conclusion of our new report, Still a Dream: Over 500 Years to Black Economic Equality.
For many important economic indicators, the pace of progress has been so incremental that it would still take centuries for Black Americans to reach parity with whites.
There are important signs of progress to mark. The unthinkably high rate of Black poverty has diminished since King’s time, falling from 51% in 1963 to 20% by 2021. But with 1 in 5 Black Americans still living in poverty—and 1 in 12 whites—it’s hardly a moment to pop the champagne bottle.
Other positive indicators include a sharp increase in Black high school attainment over the last 60 years and a significant decline in Black unemployment. For many important economic indicators, however, the pace of progress has been so incremental that it would still take centuries for Black Americans to reach parity with whites.
For example, the Black-white income gap has barely narrowed at all. In 1967, African Americans earned 58 cents for every dollar earned by whites. By 2021, that had risen to just 62 cents on the dollar. At this rate of progress, it would take Black households 513 years to reach income parity with their white counterparts.
Progress in narrowing the racial wealth divide has been even slower. In 1962, Blacks had 12 cents of wealth for every dollar of white wealth. By 2019, the last year of comprehensive data, Blacks had just 18 cents for every dollar of white wealth. At this pace, it would take 780 years for Black wealth to equal white wealth.
There has been essentially no progress in narrowing the gap between white and Black rates of homeownership, another key indicator of wealth and well-being. Sixty years later, there remains roughly a 30 percentage point gap, with 44% of Black households owning a home compared with 74% of whites.
In part, our country’s failure to bridge the racial economic divide reflects the growing inequality in our society overall.
During the last 40 years, America has experienced extreme levels of income and wealth inequality, with most gains flowing into the hands of the wealthiest—and mostly white—1%. This has contributed to the stalling of progress toward racial equity, along with government withdrawal from investments such as affordable housing.
What could put us back on track? Without a doubt, the persistent Black-white divide requires racially targeted commitments to individual asset-building and other forms of reparations.
But other programs—including full employment, a government jobs program, universal healthcare, and a massive commitment to homeownership—would reduce racial inequality and lift up all those suffering from 40 years of stagnant wages, regardless of their race.
Many of these investments could be paid for by wealth taxes aimed at reducing dynastic concentrations of wealth and power, among other efforts to get the very wealthy to pay their fair share in our unequal country.
At the Lincoln Memorial 60 years ago, King exclaimed: “We have come to this hallowed spot to remind America of the fierce urgency of now. This is no time to engage in the luxury of cooling off or to take the tranquilizing drug of gradualism.”
Taking over half a millennium to close our racial economic divide is gradualism in the extreme.
To act today, based on the fierce urgency of now, we must make the investments to eliminate racial disparities within one generation.
Sixty years after bouncing the check, it is time to fulfill America’s promise with a bold response.
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