Following the dot.com crash in 2000 and the 9/11 attack in 2001, US workers were told it was their patriotic duty to spend. This was Bush’s strategy for avoiding a deepening recession.” We must promote home ownership for all Americans”, he told an economic forum in 2002.
To entice people into the housing market, credit was made cheap and easy. US workers were encouraged to identify as investors in what Bush called “an ownership society”.
For a period it seemed like Bush’s strategy worked. US consumers borrowed like never before, fueling a global economic recovery. Bricks and mortar replaced technology stocks as the new Eldorado, and capital flooded into the market pushing up prices.
The increased paper value of homes made people feel rich and they borrowed against their equity, further fueling consumption. Mortgage brokers then repackaged the high-risk subprime loans and sold them on, themselves becoming the subject for further speculation. “Everybody believed that house prices would just keep rising”, recalled Kieran Quinn from the US Mortgage Bankers Association.
Inevitably, it all came crashing down. A higher than expected number of foreclosures in March 2007 triggered a collapse of the subprime mortgage market.
Many borrowers were having problems with their repayments after their loans “reset” onto a higher interest rate. This happened at the same time that official interest rates were rising. The collapse of the subprime markets has since triggered the current global economic meltdown.
The US economy is sinking fast. But like the Titanic, it is the first class passengers on the upper decks who get the lifeboats. For people at the bottom, Bush’s “ownership society”, has turned into a nightmare.
Once the speculators abandoned the housing market, prices dropped dramatically – 18.4 per cent between July 2006 to May this year.
This has left people working long hours to pay off massive debts worth more than the value of their home. It is estimated that 12 million people have negative equity in their homes and there are still many more subprime loans in the system yet to “reset”. Already two million people have lost their homes to repossession. In Cleveland, a run down, predominately black industrial city in Ohio, one in ten houses has been repossessed by banks. Add to this the problem of rising unemployment.
The seizing up of the credit markets and the need for US consumers to cut spending is now affecting the real economy. All the major car manufactures have experienced a severe decline in sales and are scaling back production as the availability of credit dries up.
Bush finally recognised the gravity of the situation in September declaring “this sucker could go down”. Almost overnight 30 years of neo-liberal economic dogma was overthrown and a massive $700 billion state bail-out of the banking system was mounted. But Bush’s rescue package is for the top end of town. While government is taking on the bad debt of the bankers, home owners are still being expected to repay.
On the day after Bush announced the bail-out, Raul and Anna Esquivel were evicted from their Boston home. Their monthly repayments rose from $3200 to $4200, while the value of their home dropped from $498,000 to $285,000, making refinancing impossible. They and many like them will get no relief from Bush’s package, while Richard Fuld, the former CEO of the bankrupt Lehmann Brothers, walked away from the wreckage with $480 million.
Bush’s “ownership society” has fallen in a heap. The crisis not only affects housing. Students who “invested” in their education and workers who “invested” in their superannuation, are rapidly seeing the value of their “assets” decline. Polls indicate that more and more Americans are seeing their society as being divided between the haves and the have-nots.
Small demonstrations have broken out against evictions demanding that the government bail out the people not the bankers. When the Esquivels were evicted, more than 40 people turned up to picket and four were arrested.
On October 8, Tom Dart, the Sheriff of Cook County, Chicago announced his department would no longer forcibly remove residents from foreclosed properties, following mounting grass-roots initiatives to resist evictions. Foreclosures in Cook County are expected to reach a record high of 43,000 this year.
By Mark Gillespie