Reprinted from 
by Max Fraser
If Obama is serious about his community organizing roots, then he would
do well to take a lesson from groups like the Rainbow/PUSH Coalition and
ACORN, which are calling for a moratorium on foreclosures of a year or
longer and for the creation of a massive government loan agency on the
scale of the Reconstruction Finance Corporation of the 1930s. “We need
some serious federal government intervention to restructure loans, not
repossess homes,” says the Rev. Jesse Jackson. “Because it’s not just
the borrowers anymore, it’s the economy itself. We’re in for a very
difficult economic season.”
Subprime Obama
by MAX FRASER
[from the February 11, 2008 issue]
Last year, forty-three states reported increased home foreclosure rates.
Nevada led the way for eleven consecutive months; in Clark County, which
includes Las Vegas, nearly one in twenty homes is in foreclosure. Whole
blocks have been foreclosed in Chicago. Nationwide, rates are nearing
Depression-era highs–ravaging working- and middle-class neighborhoods
that fell prey to the soft sell and outright chicanery of predatory
lenders in the heyday of the housing boom. These lenders have targeted
the most vulnerable–black and Latino borrowers have been twice as
likely to receive subprime loans as whites; female homeowners, 30
percent more likely than male; black women, five times more likely than
white men.
As the subprime mortgage debacle drives a recession that threatens
financial markets around the world, the Democratic presidential
candidates are pushing plans to address the crisis. John Edwards and
Hillary Clinton are pledging substantial federal resources to stabilize
the mortgage market and intervene on behalf of borrowers. Barack Obama’s
proposal is tepid by comparison, short on aggressive government
involvement and infused with conservative rhetoric about fiscal
responsibility. As he has done on domestic issues like healthcare, job
creation and energy policy, Obama is staking out a position to the right
of not only populist Edwards but Clinton as well.
Edwards’s plan includes a mandatory moratorium on foreclosures, a freeze
on rising interest rates for at least seven years, federal subsidies to
help homeowners keep up with payments and restructure loans, and
explicit measures to rein in predatory lenders and regulate the
financial sector. Clinton’s plan is weaker–a voluntary moratorium, a
shorter freeze, less commitment to new regulations–but she has promised
$30 billion in federal aid to help reeling homeowners and communities.
Only Obama has not called for a moratorium and interest-rate freeze.
Though he has been a proponent of mortgage fraud legislation in the
Senate, he has remained silent on further financial regulations. And
much like his broader economic stimulus package, Obama’s foreclosure
plan mostly avoids direct government spending in favor of a tax credit
for homeowners, which amounts to about $500 on average, beyond which
only certain borrowers would be eligible for help from an additional fund.
“One advantage to the tax credit is that there’s no moral hazard
involved,” one of Obama’s economic advisers explains. “There’s no sense
in which you’re rewarding someone for taking too big a risk. If you lied
about your income in order to get a bigger mortgage, then you’re not
qualified. Do you really want to give a subsidy to the guy who wasn’t
prudent?” Obama has used similar language on the campaign trail.
“Innocent homeowners,” he has promised, those “responsible” borrowers
“facing foreclosure through no fault of their own,” would get help
restructuring their loans. But no such luck for those “claiming income
they didn’t have” or “lying to get mortgages.”
“There’s been less emphasis from the Obama campaign on the really
dysfunctional role of the financial industry in the subprime mess,” says
Josh Bivens of the Economic Policy Institute. “Edwards and Clinton talk
much more about regulation of the financial industry going forward, and
to the extent that blame is placed, they tend to place it on the lenders
for steering people into loans they couldn’t afford.”
Obama’s disappointing foreclosure plan stems from the centrist politics
of his three chief economic advisers and his campaign’s ties to Wall
Street institutions opposed to increased financial regulation. David
Cutler and Jeffrey Liebman are both Harvard economists who served in the
Clinton Administration, and they work on market-oriented solutions to
social welfare issues. Cutler advocates improving healthcare through
financial incentives; Liebman, the partial privatization of Social Security.
Austan Goolsbee, an economist at the University of Chicago who calls
himself a “centrist market economist,” has been most directly involved
with crafting Obama’s subprime agenda. In a column last March in the New
York Times, Goolsbee disputed whether “subprime lending was the leading
cause of foreclosure problems,” touted its benefits for credit-poor
minority borrowers and warned that “regulators should be mindful of the
potential downside in tightening [the mortgage market] too much.” In
October, no less a conservative luminary than George Will devoted a
whole column in the Washington Post to saluting Goolsbee’s “nuanced
understanding” of traditional Democratic issues like globalization and
income inequality and concluded that he “seems to be the sort of
fellow–amiable, empirical, and reasonable–you would want at the elbow
of a Democratic president, if such there must be.”
Robert Pollin, an economist at the University of Massachussets, believes
“these three advisers generally reflect Obama’s very moderate economic
program, similar to Clintonism.” Wall Street apparently has come to a
similar conclusion. Obama had received nearly $10 million in
contributions from the finance, insurance and real estate sector through
October, and he’s second among presidential candidates of either party
in money raised from commercial banks, trailing only Clinton. Goldman
Sachs, which made $6 billion from devalued mortgage securities in the
first nine months of 2007, is Obama’s top contributor. When asked if
Obama would hold these financial institutions accountable for losses
incurred by homeowners and investors, his campaign refused to comment.
But tax credits and continued deregulation won’t solve the mortgage
crisis, which threatens to dispossess more than 2 million homeowners
this year. “There’s no evidence that an unregulated market is going to
be a stable market,” Pollin says. “The unstable mortgage market is one
indication of that. This is not anything new. What is new is that you
have a serious presidential candidate who isn’t really talking about it
and doesn’t have advisers that are prepared to deal with it.”
If Obama is serious about his community organizing roots, then he would
do well to take a lesson from groups like the Rainbow/PUSH Coalition and
ACORN, which are calling for a moratorium on foreclosures of a year or
longer and for the creation of a massive government loan agency on the
scale of the Reconstruction Finance Corporation of the 1930s. “We need
some serious federal government intervention to restructure loans, not
repossess homes,” says the Rev. Jesse Jackson. “Because it’s not just
the borrowers anymore, it’s the economy itself. We’re in for a very
difficult economic season.”
