Republicans and Democrats alike have been jumping through hoops to convince working people that it is in our best interest to hand over hundreds of billions of our tax dollars to a small elite of rich bankers and financiers. Despite the mass outrage at the grand theft plot engineered by Wall Street, the leadership of both parties is now taking a second shot at ramming the bailout plan through Congress.
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For all their rhetoric against the financial abuses of Wall Street, Barack Obama and John McCain did not hesitate for a split second to join the Mortgage Bankers Association in soundly opposing any new judicial oversight over mortgage rates.
The simple and attainable proposal would have potentially allowed hundreds of thousands of homeowners to keep their homes, yet it was thrown out. Why?
Judges who reduced a mortgage rate might be rescuing homebuyers—but they would also be arbitrarily reducing the value of mortgage assets held by the banks and lenders with a single blow of the gavel. Homeowners would still have a roof over their heads, but the right to seek maximum profits would be undercut by judicial decision. With the interests of workers and capitalists pitted against each other, politicians line up behind their corporate patrons ready to defend their interests.
The government’s sympathy for the predicaments of Wall Street, coupled with its utter disregard for the needs of working people, only reaffirms that it is fully beholden to the banks and corporations. The federal government, political candidates, bankers and financiers all claim to have the interests of the “average American” at heart, while at the same time they all get behind the plunder of taxpayers’ dollars to bail out the rich.
Could the subprime mortgage crisis have been avoided?
If lowering rates could help homebuyers now, then what could it have done to prevent the crisis from happening in the first place?
A major factor that contributed to the foreclosure crisis was the practice of subprime lending. Traditional mortgages have fixed interest rates and full repayment is expected within a certain number of years. Subprime mortgage lenders, however, lured in lower income homebuyers with initial “teaser” rates, which were reset after an interval of two to three years, raising the monthly payments significantly.
When the new rates set in, homeowners’ monthly payments skyrocketed. Millions were unable to keep up with the payments and were forced into foreclosure. Hence the present foreclosure crisis, one of unprecedented proportions, came into being.
But a national freeze on rate increases could have been declared. This would have allowed millions of homeowners to continue paying their mortgages and keep their homes, which would have consequently averted the sharp increase in homelessness. The lenders would have continued to receive monthly payments, albeit at lower rates than initially anticipated. Nationwide, property values would not have plummeted, saving millions of homeowners from losing large portions of their hard-earned equity.
Such a measure would have come nowhere close to a moratorium on foreclosures—one that is still much needed and justified—yet even this modest step was too much for the capitalist government. If Washington had declared a freeze on rates, it would have arbitrarily devalued the assets held by the big banks. Investment banks had already heavily invested in securities backed by mortgages and were anticipating high returns based on the reset rates. Any such government intervention would contradict its role as the defender of capitalist interests, including the sacred right to pursue maximum profits.
An even less radical measure would have been to have the government absorb the additional interest incurred when the higher rates set in. For example, if the interest rate on a mortgage increased from 4.5 percent to 6.5 percent, the government could have paid the additional 2 percent to the bank, while the homeowner continued paying the original interest rate.
That would have been a progressive step, but career politicians figure taxes collected from working people are better spent on helping the rich. As Washington’s recent actions on Wall Street demonstrate, it is completely willing to absorb huge amounts of debt. The question is, to whose benefit? If it can do it for the billionaire bankers, why not for working class homeowners?
With those options on the table, the government, predictably, left workers to fend for themselves instead.
Government of, by and for the billionaires
The politicians in Washington are intimately connected to the banking industry. Both Obama’s and McCain’s campaigns are fueled by Wall Street money. Through July of this year, Obama received $9.9 million from the securities investment industry; McCain received $6.9 million in the same period. Aggregate contributions from Goldman Sachs employees are Obama’s single largest source of campaign contributions and Merrill Lynch’s CEO single-handedly donated over half a million dollars to McCain’s campaign. (Associated Press, Sept. 17)
Even legislation that appears progressive on the surface is actually crafted in the interests of the capitalists. The Senate’s “Foreclosure Prevention Act” should have been called the “Welfare for Lenders and Developers Act.” The bill benefitted the banking and construction industries while doing nothing for homeowners. Much like the special bankruptcy measure was dropped from the bailout plan, measures toward averting half a million more foreclosures were eliminated at the behest of the lending industry. Well over 90 percent of the bill’s expenditures were for tax rebates for businesses. (Washington Post, April 4)
This issue exposes Washington’s connections to Wall Street. The responsibility for the foreclosure crisis lies squarely with the bankers who trapped working-class families with cut-throat mortgage rates and then gambled with the debt in a frenzy of speculative buying and selling. Despite all this, the government is bailing out the Wall Street gamblers and dumping the debt onto the backs of the taxpayers.
Despite the cynical message of change being broadcast from the twin parties of Wall Street, it is clear that Washington will not act on behalf of the millions of working-class homeowners left out on the street due to foreclosures. What is necessary for real change is an organized people’s movement representing the interests of the overwhelming majority—the working class.
