FAITH-BASED LENDING?

11 08 2007

It sounds crazy: with home prices rising beyond reason and value, banks start giving variable interest loans to millions of people who previously wouldn’t have been eligible for a home loan, due to low income. Was it “faith-based lending”? Then many of these people start defaulting on their loans, caught between the collapse of the US middle class due to outsourcing, soaring house payments due to the variable interest loans they took on, and the suddenly falling value of their homes . Some of the banks are mortgage specialists who go bankrupt because too few of their loans are being paid back. When they go bankrupt, the homes in question, which have been repossessed and are unsaleable for a variety of reasons, become the property of the bankrupt mortgage company’s receivers. Thus, millions of empty private homes in the US are now owned by multinational corporations…but what are they gonna do with ’em? And what good does it do them? Especially since the housing price bubble has burst and home prices are sinking back towards sanity, which is nowhere near the amount of money owed on them?

“When life hands you lemons, make lemonade,” they say, and all those (mostly)boarded-up houses, in cities and towns all across America, are now lemons in the hands of multinational corporations that don’t give a rat’s ass about local communities. They are going to get squeezed, and the rest of us along with them. Where it is still possible, we will see the kind of urban displacement that the Supreme Court allowed in the New London eminent domain case. Those still living in neighborhoods with a high foreclosure rate may be pushed out so that upscale redevelopment can take place.

There’s another layer to this—these loans were put together into large groups–”bundled,” the Wall Streeters call it—and then sold by the banks to other companies, who, despite the obviously shaky nature of a financial instrument that depends on payments from a class of people who are being systematically put out of work, looked primarily at the fact that the classic Wall St. stock rating agencies, Moody’s and Standard and Poor, gave them good ratings. Due diligence, it seems to me, was not exercised.

In spite of what is a financial downturn for so many of us, Bush is right that the economy is strong. The economy is strong because money is flowing from the middle class into the bank accounts of the upper class at a faster and faster rate. The sale of these so-called “subprime loans” is just another example of this. America is becoming more and more of a two-tiered society, with government of the wealthy, by the wealthy, and for the wealthy.

The case of the subprime bubble raises interesting legal questions, because there are laws against making loans that you know are likely to default. First, were the companies that made these loans acting in bad faith? Did they know that the people to whom they were loaning money were likely to default on their loans? Did they misrepresent the nature of the variable rates on these mortgages? What prudent person would make a loan he was reasonably sure would end up in default? Who would borrow money if they understood that, after a couple of years, their payments were likely to double? Smells like Enron spirit to me!

Sure, Congress should investigate, but, as with so many other things, it looks like the Democratic party will be shirking its constitutional responsibility. John Conyers has complained that there is too much Republican wrongdoing to investigate it all, so he has apparently stepped back from his earlier resolve to impeach the junta and is just trying to hold his breath until they leave. I don’t know what Nancy Pelosi did to make him fall in line, but I bet it was some kind of blackmail…on a black male….hmm…..if there’s a country left after this political, economic, and climactic freefall ends, I hope it’s a country with a nice, strong, Green Party…because the Republicrats and the Demicans are gaming America into a third-rate banana republic and blaming each other for it. When you start digging into the history of this real estate/loan bubble, it’s definitely a bipartisan creation. It’s embarassing to watch. It would be funny if it wasn’t about my life and the lives of everybody I know.

music: The House Band, “Pharaoh” (by Richard Thompson)

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