The American dream is a nightmare of foreclosures

Las Vegas – known best for its gambling haunts – now has a new reputation. It’s America’s No.1 city for foreclosures, with more people losing their homes here than elsewhere in the country.

Artist Emily Kennerk has created a 22-hour video installation which shows an image of every home foreclosed in 2009. (Foreclosure is the legal process whereby a bank or lender obtains a court order that terminates the borrower’s right of redemption. It is harsher than repossession).

Describing her installation, Kennerk says as you walk around the town you can’t help but see “this ghost town is forming around you. It’s broader than Las Vegas. This is the first generation that’s going to have to deal with the death of the American dream”.

More than four million US homes have been repossessed in the past three years. A website currently lists 2,304,257 foreclosed properties in the US. In the state of Nevada where unemployment stands at 14%, more than six out of ten of all home sales are currently from foreclosures.

At the start of the sub-prime mortgage crisis, back in September 2008, the US Treasury took the mortgage giants Fannie Mae and Freddy Mac into government “conservatorship”. These two mortgage corporations were set up under Roosevelt’s New Deal during the Great Depression of the 1930s. Along with Ginnie Mae (the Government National Mortgage Association) they currently guarantee $5 trillion in US mortgages and 96.5% of all newly originated mortgages in the US.

So far the government has injected $145 billion into them to cover their losses. The mortgage market now is almost a wholly owned subsidiary of the United States government, according to former Federal Reserve chairman Paul Volker. "Almost all the mortgages made now are insured by the government, bought by the government, and the guys at Fannie Mae and Freddie Mac are the market . . . It’s clear Fannie Mae and Freddie Mac need to go. "

But the US is not only affected by a housing crisis. The malaise goes far, far deeper. Three trends have come together. Economists estimate that the annual incomes of the bottom 90% of Americans have risen only 10 per cent in real terms over the past 37 years while the incomes of the top 1 per cent have tripled.

Thus, a “slow economic strangulation”, which began well before the Great Stagnation, now means that income mobility is declining just as inequality rises sharply. Even families with a gross joint income of $70,000 per year, are only “a pay check or two from the streets” as one Minneapolis worker puts it. Medical expenses are a nightmare. Even families on twice the US median joint income have to borrow heavily to have essential, life-saving operations.

Arthur Miller’s 1949 play, Death of a Salesman, dramatised the anxieties arising from US Great Depression of the 1930s and the reliance on credit to provide necessities. During the Cold War years, such plays were seen as an attack on great American dream. But in today’s Great Stagnation, following the years of easy debt-fuelled consumer credit, which analysts call the “Great Moderation”, it’s certainly not playwrights who are pricking the dream-bubble.

The inability of the capitalist system, not only to ensure the fundamental necessities of life, but the very notion of a positive future is self-evident. Cities and states are staring at bankruptcy while trillions of government dollars have failed to revive the economy. As American comedian George Carlin quipped: “It’s called the American Dream because you have to be asleep to believe in it.”

Corinna Lotz
A World to Win secretary

An umbrella in a hurricane

The union leaders at the TUC week built up quite a head of theatrical steam over their demand – swiftly rejected - that New Labour politely asks the energy companies to pay a one-off, windfall tax to be used to hold down prices. It was a waste of everybody’s time – and energy.

Instead, the power companies are being invited to fund an insulation programme, the cost of which can be knocked off their tax bill or recouped through higher prices!

All in all, the government remains 100% in thrall to the corporations and especially the financial markets. You can learn much about the strength of their commitment by opening the rushed report Chancellor Alistair Darling commissioned from Sir James Crosby on how to improve the functioning of the mortgage market. Crosby is deputy chairman of the Financial Services Authority - the government’s “regulator” (do I hear cynical sniggers?), and former chief executive of the seriously ailing HBOS banking group.

As it happens Crosby left HBOS in 2006, having received a knighthood for services to the financial services industry. It’s what you get from New Labour for leading an organisation that now has an extremely high loan-to-deposit ratio. At 177 per cent, it is higher than any other British bank. In other words, the UK’s biggest mortgage lender lent out an awful lot more than they’ve got on deposit, and they’re not going to get much, if any of it, back. Ever. Does that make Crosby the man to sort out the mortgage mess? Apparently so.

And the report? It’s not as if Darling set Crosby an open-ended “what is to be done” kind of question. In his letter to Darling which fronts up the report Crosby writes: “In April of this year, you asked me to review what market-led initiatives might be necessary to improve the functioning of secondary and primary markets in UK mortgage-backed securities ... in the context of the recent and ongoing disruption in global financial markets.” (emphasis added in case any TUC leaders who may be reading, missed it).

Crosby and the government are wasting their time because their beloved markets have taken on a life of their own. A year ago this week, Northern Rock’s crisis became public. Taking the failed bank into temporary public ownership and pumping billions of our money down the plughole was a desperate, hopeless attempt to prevent the global market meltdown. A bit like an umbrella in a hurricane.

Which brings us to Fannie Mae and Freddie Mac, the US mortgage companies taken over by the American government earlier this week. Keyboards are rattling all over the world about the scale and significance of this, the biggest bail-out of a financial institution in history. Some say that it amounts to nationalisation – or the socialisation of debt, passing the risk of failure and the costs to the taxpayer. Some are arguing that the global crisis has got so bad that it has made the neo-liberals stand on their heads, cancelling shareholders’ rights, wiping them out.

Certainly it is bad. Very bad. Most of the big economies are either already in recession or will be by the end of the year. The collapse overnight of UK holiday firm XL is a sign of the times. Some analysts are beginning to say that there can’t be a recovery for eight to ten years. The giant global financial services company, Lehman Brothers, which borrowed billions of dollars from the US Federal Reserve earlier this year, is on the skids with no rescuer in sight.

But the US government hasn’t begun to adopt socialist measures, and the rescue won’t achieve US Treasury Secretary Henry Paulson’s aim “to protect the stability of the financial market, and to protect the taxpayer to the maximum extent possible”. Unless you understand “protection” as wiping out thousands of regional banks that are among the shareholders in Freddie and Fannie. In reality it is an unimaginably huge gamble, as jobs and incomes are blown away, to keep people with mortgages tied into repaying the debt they’ve been seduced into by the fantasy spun by global financiers and their friends in London and Washington. Some stability.

Gerry Gold
Economics editor