FCIC report on Financial Collapse published

by Harsha Sekar

The Just-Released 545-Page Report (Source: New York Times)

From the perspective of a housing commentator, last week was one of the more eventful in quite a while. Buried underneath the maelstrom of news covering the President’s State of the Union and the protests in Egypt, last Thursday the Financial Crisis Inquiry Commission (FCIC), a bipartisan panel created last year to investigate the origins of the 2008 financial collapse, released their long anticipated findings—the Commission concluded that, all things considered, the financial system’s implosion was no doubt “avoidable.”

In fact, the FCIC’s webpage declares:

The Commission concluded that this crisis was avoidable—the result of human actions, inactions, and misjudgments. Warnings were ignored. ‘The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again.

What’s notable is the extent to which the report reiterates the factors identified by the vast majority of experts. Which prompts one to wonder how influential the pundits and news media have been on the Commission itself. As far as the main causes of the crisis, the report’s bullet points include; “widespread failures in financial regulation,” “dramatic breakdowns in corporate governance,” “excessive borrowing and risk [taken] by households and Wall Street,” “key policy makers ill prepared for the crisis” who were “lacking a full understanding of the financial system they oversaw,” and “systemic breaches in accountability at all levels.”

Needless to say, this strikes most other commentators as an exhaustive criticism of the entire American political and economic systems. Consequently, the panel has provoked much commentary. According to the Paper of Record, the report—which was intended to be strictly bipartisan—possesses “embarrassing implications for both parties.”

Of course, the report Commission contained dissenters, all of whom just happen to members of the anti-regulation Republican Party. Perhaps the most newsworthy of these is Peter Wallison, an employee of the right-wing think tank, the American Enterprise Institute. According to the Times’ Business columnist Joe Nocera, Wallison’s dissent signifies a “lonely, looney cri de coeur that placed the blame for the financial crisis entirely on Fannie Mae, Freddie Mac, and federal home ownership policies.” Nocera describes this view as a “position so contrary as even his fellow Republican commissioners did not agree with him.”

While the panel’s 545-page document clearly aims to level a sweeping condemnation of the system at large, it unfortunately lacks the sort of substance that is necessary to meaningfully interpret the panel’s findings. More specifically, the FCIC’s nebulosity makes it difficult for policy makers and citizens alike to discern exactly what is to be done in order to patch up the damage. And it provides no suggestions on how to ensure that such a calamity won’t happen again.  While the study may have been necessary and the criticism of well-resourced institutions is reassuring, more substance would be have nice, too.

Remembering Dr. King, One of America’s First Equal Opportunity Housing Advocates

By Harsha Sekar
Martin Luther King Marching in Chicago
Source: Flickr

Last week, many Americans reflected on the legacy of one of our nation’s most revered heroes, Dr. Martin Luther King Jr.   Dr. King’s holiday carried a special resonance this year in light of the recent tragedy in Tuscon, Arizona.  In the past week, luminaries ranging from New York Senator Charles Schumer to the Revered Al Sharpton invoked Dr. King’s message in an effort to comment on the shootings, as the latter even held a special King Day Forum, focusing on the ugly prevalence of gun violence.

At the annual King Day event held in Brooklyn, many of the speakers made the same juxtaposition, calling for an end to gun violence in honor of Dr. King’s legacy.  The New York Times noted that all of the speakers “knew for sure what Dr. King, were he only still alive, would have done about America’s gun culture.  He would have led campaigns to reign it in, they said.  And they were probably right.”

Indeed, there is no question that they were.  But when Dr. King’s name emerges in the contemporary discursive, many more voices than just the good-natured community organizers in Brooklyn have attempted to appropriate it.  And some of them are highly questionable at best.  (I won’t divulge any names, but it’s disheartening to see right wing commentators drawing from Dr. King’s life in an effort to promote their welfare state-thinning agenda). The Times’ Clyde Haberman is correct in remarking that King enthusiasts find themselves “roughly equivalent to constitutional interpreters who claim to intuit what the nation’s founders would have thought on 21st century concerns that were unknowable 225 years ago.”

It is easy to invoke King’s name these days precisely because in many instances, we don’t know what he would have thought of such 21st century concerns.  While Dr. King is remembered for his struggles against the nation’s greatest evil in the past century, Jim Crow in the South, much of his later work has consequently been forgotten.  This includes, perhaps most notably, his relentless campaign for fair housing, which culminated in the passage of the Civil Rights Act of 1968 (the “Fair Housing Act”).  The Act was signed into law about a week after King was killed in Memphis.  And in contrast to the ceaseless speculation about what King “would have thought,” fair housing is an issue for which he spent years organizing, speaking, and protesting.

Most of Dr. King’s significant fair housing work took place in Chicago, a city known at the time as one of the most intensely segregated north of the Mason-Dixon line.  His work in the Windy City in January 1965 is brilliantly recounted in Rick Perlstein’s highly acclaimed political history of the sixties, Nixonland. Perlstein describes the squalid conditions that greeted King upon his arrival in Chicago’s predominantly African-American southwest section: “he rented a four room walk-up for his family in Lawndale (“Slumdale”) neighborhood.  Reporters crowded each other on move-in day, noting the smell of urine, the single hall light, the rumors the block was controlled by gangs.”

King came to Chicago at a time when the city’s mayor, Richard Daley, proudly proclaimed that there was “no segregation in Chicago,” since the city had passed an open housing ordinance a few years prior.  Daley was well aware, however, that without federal enforcement, fair housing in practice would never surface.

Having chosen Chicago for this very reason—to demonstrate why desegregation would not succeed without a sufficient legal infrastructure—King’s efforts, perhaps unsurprisingly, faced fierce hostility.  Perlstein chronicles constituent letters to members of Illinois’s Congressional delegation, one of which read, “Do you or any of your friends live next door to a negro—why should we have them pushed down our throat?”  Later in his stay, King delivered a summer sermon at the Shiloh Baptish Church, where just beyond the church’s walls, “unbeknownst to the cops or to King, kids outside assembled Molotov cocktails.”

Despite the setbacks, King persisted.  On August 5, amidst searing heat, King led a long-planned march through the city, in which he was joined by a number of African-American celebrities.  Perlstein chronicles the copious insults and threats he received while marching, and after a rock grazed his ear, King was forced to pause his march briefly.  Perlstein writes:

He slumped to the ground—the Gandhian moment of truth. ‘I think everybody in that line wanted to kill everybody on the other side of the line,’ a marcher later recalled.  King got up and kept on marching.  We shall overcome.

Indeed, Dr. King’s resilience and grace in the face of unspeakable hardship helped instill in the nation a consciousness about equal opportunity housing that paved the way for the Fair Housing Act of 1968, which outlawed racial discrimination in the sale, rental, and financing of housing. While the hatred recorded by Perlstein eventually killed Dr. King, his legacy no doubt remains strong.

Unfortunately, we are far from achieving Dr. King’s dream, evidenced by the continuance of deeply segregated neighborhoods, schools, and public institutions throughout the United States.  The senseless violence in Arizona further reminds us that our nation painfully lags behind Martin Luther King’s vision.  At St. Ambrose, Dr. King’s life inspires us when we think of the possibilities of service but at the same time, forces us to constantly examine the fact that there is so much work to be done.

Homeownership, Politics, Mortgages and More

I would like to welcome Harsha Sekar as our resident blogger. Harsha will be preparing weekly posts to this blog. I am hoping that his insightful observations on current topics in housing will generate some new conversation.

Happy New Year and Welcome back to the official blog of St. Ambrose, Talk to St. Ambrose.  Picking up where my colleague Will Flagle left off, I will serve as the new regular blogger for the Talk to St. Ambrose.  At this point, we will provide a weekly post at the beginning of each working week, covering the most pressing and controversial national housing issues germane to our service at St. Ambrose.

Since our last update back in the summer, a number of major issues have emerged with sweeping implications for the housing policy nationally and by extension, St. Ambrose’s work here in Charm City.  These issues include the Simpson-Bowles plan to strip away the mortgage interest tax deduction as a means to reduce the national debt, the predatory lending lawsuits against Wells Fargo and other banks initiated by a number of major U.S. cities (Baltimore included), and the missing documents and “robo-signer” scams that have inexplicably (or perhaps unsurprisingly) affected some of the largest banks in the nation.  Furthermore, as state and local budgets have taken hits and entitlement programs have endured relentless beatings from lawmakers preoccupied with “spending cuts,” things can seem gloomy for folks like us, whose mission is to provide low to moderate income community members affordable housing and to curtail homelessness.  Amid the changing political landscape, the piercing human costs of poor housing policies and homelessness remain, and we are geared up to fight harder in this challenging climate.

Among the maelstrom of ideas and blog posts, a few things have grabbed my attention of late, mainly because they overlook the position of low to moderate income homebuyers.  In “Who Wants a 30 Year Mortgage,” Bethany McLean, in the New York Times Opinion section, reexamines the future of the hallowed 30-fixed rate mortgage, a hallmark of the American banking system and a culture that aggressively incentivizes homeownership.  McLean points out that despite their prevalence, banks have long been in cautious in doling out these loans, since they 1) expand the risk of default over a 30 year timeframe and 2) ensure that the banks would shoulder the risk of an increase in the interest rate.  Of course, these practices were kept afloat thanks to government guarantees.  As an alternative to the 30-year fixed rate loan, McLean proposes the promulgation of 15-year loans that can be adjusted after a five-year period for changes in the interest rate.  “Wouldn’t it be better for banks…to offer mortgage products that they actually want to keep on their books?” asks the author. While this kind of proposal might stymie the securitization of unreliable loans, it disregards the troubled impact that adjustable rate mortgages have had on low-income, predominantly ethnic minority communities.  Indeed, variable interest rates attached to loans have given banks enormous leeway within which they have defrauded clients, aggressively recruiting people to buy homes with loans unconscionable in their design.

Moreover, since the onset of the financial crisis more than two years ago, it has been increasingly clear that the American housing market is closely tied to broader economic and societal trends.  In the noted Times Economix blog, Harvard economics professor Edward Glaesser assesses the way in which policies that incentivize home-ownership has led to major population growth in some parts of the country, while regions that lack such aggressive policies have experienced hardly any increases.  While this kind of analysis may be self-explanatory on its face, since Americans—who, it can fairly be inferred, value homeownership more than citizens of any other nation—are drawn to regions where they can gain a mortgage, and hence, own a home.

Source: New York TimesSource: New York Times

Glaesser goes on to point out what he terms as the “low growth states” (i.e. Vermont, Rhode Island, and New York), overwhelmingly voted for President Obama in the 2008 election, while the high-growth states, like Oklahoma and Utah, turned out for the GOP.  He juxtaposes this evidence with the fact that wages are much higher in the Obama states than in the GOP ones.

Source: New York Times

And what exactly might this all mean?  According to Glaeser, “people are not following the money.”  Rather, “the ability to deliver abundant, affordable housing seems clearly to be a big element in explaining the high-growth states. Arizona and Nevada offer plenty of sunshine, right next door to California, at a fraction of the price. Despite a vast increase in population, these places remain cheap because they build so abundantly.”

He goes on:

My interpretation of Red State growth is that Republican states have grown more quickly because building is easier in those states, primarily because of housing regulations. Republican states are less prone to restrict construction than places like California and Massachusetts, and as a result, high-quality housing is much cheaper.

He proceeds to state that this is an “irony,” since, in Glaeser’s view, it is progressives states “that are believed to care about affordable housing.”

Funny—wasn’t it Bush II who used to speak at length about an “ownership society.”  And by affordable housing, it seems like Glaeser means folks who are interested in purchasing single family homes in sunbelt suburbs.  After all, these are the people who are privileged enough to be able to relocate simply (in Glaeser’s mind) so they can buy a cheap house (apparently because of better “regulations”), which, roughly speaking, translates to being able to get a favorable loan.

Of course, places like Nevada and Arizona haven’t exactly proven to be the best place to buy a home, at least in the eyes of the many people purportedly making the trek out West simply to do so.  In contrast to Glaeser’s somewhat nebulous contention about regulation, it’s likely that we need more regulation, not less.  As mentioned, some of the most disheartening news to surface after the financial crisis was the extent of predatory lending and the targeting of under-resourced potential home buyers with bad loans.  A well regulated lending system coupled with humane and compassionate policies with an emphasis of alleviating poverty, not incentivizing buying simply for the sake of it, strikes one as a more attractive alternative.

We would love to hear your thoughts on these and other issues in the discussion section of the blog.  Again, we are resuming normal posts at the beginning of each week—join us for more thoughts and comments from the folks at St. Ambrose.