Saturday, January 2, 2010

Moral Hazards

I was listening to the Bill Moyers Journal podcast a few days ago, and came upon an interview with an organizer for the organization City Life / Vida Urbana who assist people whose homes are being foreclosed upon, by informing them of their rights and helping to make them stay in their homes, and perhaps compelling the banks who "own" the foreclosed homes to resell the mortgages at the current market price to its current occupants. One of the interviewees made an excellent point about the rationalization of foreclosure and the ways those working markets seek to "punish" lower-strata consumers.

From the transcript of the interview:

"One of the unheralded things about this crisis right now is that there's an awful lot of owners who come to us who cannot afford their home at the inflated value, at the adjustable rate mortgage price. But they have plenty of income to afford their home at the real value at a 30-year fixed. And so why not just give them the property back at that amount? If they're foreclosed on, the best the bank that can do is sell the property at the real value. By definition, that is the absolute best.

If Deutsche Bank forecloses on Joe Schmoe the best they can do is to sell that property at real value. So if Joe Schmoe can afford the property at real value, why not sell it back to him? But the only reason the banks aren't doing that is because of what they call moral hazard. They say basically that homeowners should be punished because they signed these loan documents.

These are the same guys who have run our entire economy into the ground and who have been rewarded with billions in taxpayer bailouts and have used billions of that money to give bonuses to the very executives that drove their companies and the whole economy into the ground. And they are citing moral hazard as the reason why they can't resell that property to the existing homeowners at the real value. That is disgusting and hypocritical and in the extreme."

The fact that there are mechanisms within the housing market to not only dole consequences out to buyers but also "punishment" all under the suspicious concept of a Moral Hazard seems almost like a textbook example of an ideological construct. But makes starkly apparent how the "punishment" or austerity of a financial crisis always gets displaced down to the economically subordinate, whilst those at the top are shuffled around, nameless, and without material consequences.

This story also reminds me of other recent movement within the U.S. to occupy unused and/or tenantless property and institutions. For example a movement in St. Louis that moves homeless people with major health problems into empty homes, or the recent University of California student occupations. A paper presented at last summer's Marxist Literary Group Annual Institute where the presenter described movements to occupy and retake the housing presented the possibility for a new radicalism in the United States organized around housing.

In a post-civil rights movement moment it would almost seem like civil disobedience tactics like occupation would seem to not really address the fluidity of power (thanks to networked communications technologies, i.e. you can't shut an institution down by merely occupying it, thanks to these technologies an institution can continue to function). But such tactics seem to be gaining national momentum and attention.

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