Today, 2 million families face foreclosure on their homes in the aftermath of what should be called the “subcrime”: Many credit-poor families were seduced into buying houses with so-called subprime loans (pricier than most ordinary loans) that the lender knew they could not afford. The mortgages had interest rates that were initially attractively low, but which quickly reset upwards. Families living on the edge soon found themselves in an unaffordable situation—especially as other costs, such as gas and food, went up. Many homeowners are now caught in a squeeze that could cause far more homelessness than Hurricane Katrina.
And they’re not the only ones in trouble. Financial markets are melting down. To keep them afloat, the Federal Reserve and its counterparts in other countries have had to inject hundreds of billions of dollars into the banking system. More than 140 companies have already imploded. Thousands in the housing industry are out of work. Economists fear a serious recession and are scaling back their projections for growth.
How was this allowed to happen? These days, instead of holding onto mortgages they make, most banks sell them to Wall Street. There, prominent firms make millions recycling mortgages into securities and other exotic financial instruments, often using them to provide financing for even bigger deals—and sanctioning the unrestrained greed and unregulated chicanery of the predatory lending industry.
It became a classic “the emperor has no clothes” story when it was revealed that many of those “asset-backed securities” had no real assets behind them. Suddenly, the paper proved worthless and the markets panicked. Soon there was a “crisis of liquidity” in financial circles, as it became clear that bad deals had been funded by bad debts. That’s where we are now: trying to figure out what’s real and what’s not, as the markets melt down and mortgage companies that engaged in predatory lending implode.
It’s a major crisis, impacting the people who can least afford it. In September, the Federal Reserve cut interest rates by half a percent—a move that will help bail out bankers, but not the people who are suffering under the burden of debt and foreclosures.
We need the media to put this crisis into a larger context, stop focusing on the woes of wealthy speculators, and show the economic pain of ordinary Americans. Only a few critics are telling the real story, as populist pundit Jim Hightower does: “At its core, this is a classically simple story of banker greed and outright sleaze. And the astonishing part is that nearly all of the rank injustice perpetrated by today’s moneychangers is considered legal and is practiced by supposedly reputable financial firms.”
In Europe and elsewhere, many religious leaders have been leading the fight for serious debt relief for Africa. Where are the voices calling for serious action to help those hurt by the mortgage crisis here in America?
We need to demand a moratorium on all foreclosures until we have a full investigation of the discriminatory and illegal targeting and deceptive marketing used by shady mortgage companies—and of the collusion by investment banks and hedge funds. Barack Obama has called for fines against these merchants of misery. But does that even go far enough? Should these firms be bailed out or jailed out? We need scandal, protest, and resistance. We need indictments. We need investments in housing, and massive paybacks by the financiers who enriched themselves at others’ expense.
Beyond that, we also need tougher regulation of the whole credit industry, including the predatory practices of credit card companies and payday lenders. These form part of the growing “financialization” of our society, which transfers more and more wealth from the people who have least to those at the top—a process that, in the case of the mortgage meltdown, has now put the entire global economy in jeopardy.