Old Ideas for New Crises
The context was a blog entry about financial difficulties for Border's bookstores, but this excerpt jumped out and grabbed my cuffs.
In 1932, according to the author of The Coming of the New Deal [Arthur M. Schlesinger, Jr.], more than a quarter million families lost their homes through mortgage foreclosures; this at a time when the population of the United States was not much more than a third of what it is today. The first response of government, Herbert Hoover's Home Loan Bank Act of 1932, like Republican proposals to meet the current crisis, offered financial incentives to lenders. This did nothing to cure the problem. When Franklin Roosevelt defeated Hoover in the November election, the rate of foreclosures had risen to almost a thousand a day.
What did Roosevelt do? In his famous first hundred days, he created a new agency, the Home Owners Loan Corporation, which bought mortgages from the lenders who could no longer carry them, financed payment for taxes and repairs, and "rewrote the mortgages to provide for easy repayment over a long term and at relatively low interest rates." One out of every five mortgaged homes in America benefited from this program. The real estate market was saved from collapse and banks, instead of failing, once again began to lend money to people who wanted to have a home of their own.
[Lawrence Alexander, "Knowing More and More About Less and Less", Huffington Post, 4 April 2008]
Of course, it was easier in those days when someone actually knew who owned the mortgages, but it's an idea.
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on Saturday, 5 April 2008 at 16.13
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One way to have a sobering and stabilizing effect on the mortgage biz would be to require that mortgage lenders must hold the debt they take on for five years, except in certain circumstances. Then, the lender would have to show proof of being in a situation where selling off is allowed and have to register with FHA the disposition of all contracts sold. Such as where the hell they went. Oh, and no more than 25 percent of a mortgage lender's holdings could ever be sold to a foreign interest.
Republicans are rejecting even the thought of anything like the New Deal model for helping homeowners in over their head because, they claim, the homeowners had no business getting in over their head in the first place. There must be consequences, Republicans say, or else the government will just encourage more irresponsible borrowing by people who are poor as the proverbial church mouse.
Not surprisingly, to those who know the Republicans' ideology, these same Republicans are little worried about the possibility of encouraging the hustling cons of mortgage lending concerns from turning around and making more irresponsible loans that they will again bundle and sell off — very quickly — to a succession of more-greedy and less cautious "investors."
Ultimately, vast numbers of swollen "securities" bundles are gobbled up by humungous hedge funds, so huge and secretive, those who buy into them have no idea what they're actually getting, but they assume it must be everything because the fund is so huge and its numbers are so staggering.
And, of course, Republicans in office realize anything as huge and expensive as a hedge fund — unlike foreclosed on John Q. Nobody — mustn't be allowed to fail, because that would hurt the economy. Starting, of course, with a bunch of their favored people — the ones able to buy into a hedge fund.