Dec 5, 2013
Time to Start Preoccupying Wall Street
Posted on Dec 9, 2011
Such a set of demands is hardly as radically over the top as it may first appear. No less a figure than Martin Feldstein, the former chairman of Ronald Reagan’s own Council of Economic Advisers, recently argued in a New York Times Op-Ed piece that the country will never get out of its current economic rut until the problem of underwater mortgages is squarely addressed. “House prices are falling because millions of homeowners are defaulting on their mortgages,” he noted, “and the sale of their foreclosed properties is driving down the prices of all homes. Nearly 15 million homeowners owe more than their homes are worth; in this group, about half the mortgages exceed the home value by more than 30 percent.” Noting the strangulating effect of this situation on the economy as a whole, he went on to propose how, in order “to halt the fall in house prices, the government should reduce mortgage principal when it exceeds 110 percent of the home value. About 11 million of the nearly 15 million homes that are ‘underwater’ are in this category. If everyone eligible participated, the one-time cost would be under $350 billion”—a cost he proposed be divvied up evenly between the banks (which is to say their shareholders) and the government.
A similar calculus could be applied to student loans. The real scandal here is the way the rates of the loans in question (I have friends who are locked into Citibank to the tune of 10 percent!) might have made sense in the day when prime was 4 or 5 percent, though it becomes utterly usurious at a time when the Fed has been busy shoveling money at those same banks at well-nigh zero percent, supposedly in order to help rev up the economy. Maybe those loans should be reset at just a few points above current prime, or some such—or else the overhanging principal reduced according to some fairer systemic formula (no total loans to exceed $25,000, with less onerous schedules for repayment, or some such). For that matter, there may be other ways of parsing the resetting of underwater mortgages (for example allowing for the temporary recasting of the mortgage payment into a non-interest-paying rental, without the loss of an accrued stake in the property in the interim).
The Occupy movement would need to enlist the advice of sympathetic economists and loan experts to craft the precise terms of the respective demands. In addition to the alleviation of tremendous amounts of individual and family anxiety and suffering, the more generalized goal of the reset—and incidentally, why is it that up till now in this crisis only the improvident banks and investment houses have been allowed to reset the terms of their deals, without any penalty, whereas none of the rest of us have been accorded similarly revivifying largesse?—would be to free up all sorts of spending money at the lower reaches of the economy where it might actually do some good.
The naively self-deluding flaw in Feldstein’s proposal, alas, is that he aimed it at the government. It’s past time that pundits like him start getting real: This government, paralyzed and entrammeled as it is these days, is never even going to consider, let alone act upon, anything of the sort. But our strategy circumvents that dead end entirely.
I can already hear the baying screeches welling up from the coddled opioniati—almost a whole other charm of the proposal. Not fair! Against the rules! (Wait a second, isn’t it the lenders’ responsibility to ascertain the viability of the loan in question, and isn’t the prospect of default the supposed reason they’ve been allowed to rake in all that intervening interest? Is it our fault if they weren’t able to calculate the eventual consequences of all these decades’ worth of their compoundingly insouciant arrogance?) Moral hazard! (Now they start worrying about moral hazard?) What about those who played by the rules? (You mean an earlier generation that never had to rack up these sorts of student debts because college was much cheaper? You mean homebuyers who happened to secure their loans before the bubble and back when regulations still prevented the sorts of predatory practices to which their neighbors succumbed? Beyond which, this crisis affects all of us equally, with the exception again of that impervious 1 percent. If neighborhoods don’t recover as a whole, no one in them is going to have a secure horizon.) And finally, that last-ditch all-purpose room-clearer: class warfare! (Yeah, right.)
A further charm of the proposal is that many of those it seeks to engage would be distinctly easy to organize: In many neighborhoods, house after house is underwater, and it would just be a question of going door to door. A similar pattern pertains with recently graduated students, who tend to congregate, unemployed, in the same watering holes and in any case can be reached via their alumni organizations. (Indeed one could deploy one group to organize the other.) Once reached, such re-engaged individuals could form the basis for a significant widening of the innovative mass-participatory democratic impulse so brimmingly in evidence at the various current occupations. Something old and ailing, the economy, might receive a vivifying jolt; and in the process something new and dynamic and gleamingly hopeful might quicken into being.
It’s important neither to underplay what is being asked of signers, nor to leave them to their own devices once they do sign. People are being asked to put their livelihoods on the line (all the money they have tied up in their houses, often their entire retirement savings; the prospect of a complete collapse in their credit ratings; a mountain of potential legal fees, etc.). While organizing the signers, the movement would also need to be developing support systems: legal aid cooperatives, alternative credit societies and the like (cooperatives whose seed funding could be provided by supporters not directly called upon to sign the growing commitment petitions, and which could in themselves grow into vital alternative institutions).
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