Hurricane season has begun. But this time, the storm threatens to be bigger even than that which struck New Orleans. I am not referring to a physical storm, but a storm of houses facing foreclosure, families uprooted, whole neighborhoods blighted by unseen forces.
We may not have people stranded on the roof, but currently there are 265,000 homes in Florida in some stage of foreclosure. Florida has the second-highest rate of foreclosure in the United States.
In Florida, according to one study, there is one foreclosure filing for every 95 households.
Of course, this catastrophe was as preventable as the disaster in New Orleans. In that case, the federal government had notice years in advance that the levees were in drastic need of work. The government had even conducted mock scenarios to preview what would happen in the case of a Category Five storm.
Despite this knowledge, the Bush administration did nothing. After Katrina, some evacuees were sent to the New Orleans Superdome. Where do the displaced families, the evacuees of the foreclosure crisis, go when their homes are gone?
This latest disaster is the direct result of acute regulatory failure on the part of the Bush administration. These regulatory lapses were arguably as reckless as the failure to buttress the levees in New Orleans.
There were two major forces that came together to produce what became a perfect economic storm.
First, sub-prime lenders in Florida had a free hand to make predatory “teaser’’ loans in which the interest rate balloons in a couple of years. Second, the government permitted and even encouraged what is called the “securitization’’ of mortgages. In essence, this allowed Wall Street speculators to bid up the price of homes as if homes were commodities like oil or gas.
Bush’s inaction here was not accidental; it was a choice, a kind of head-in-the-sand indifference. “The economy will take care of itself?” Wrong.
What has happened gives a sense of déjà vu. Former President Ronald Reagan, an earlier champion of deregulation, ignored the lessons of the 1930s in the ‘80s. Just as Reagan’s deregulation led to the S&L collapse, so did deregulation of the mortgage industry lead to the collapse of the housing market.
Ironically, the only solution the federal government offers is to bail out the very lenders who created this mess while, in the words of Wade Henderson, “kicking hard working families to the curb.”
Some say it is the problem of those who are losing their homes. Wrong again. When millions of homes go up in foreclosure it is everyone’s problem. Now, if not always, we are all wrapped in the same garment of economic destiny.
The home is the epicenter of the American dream. The scope of the disaster is not merely that thousands of families have lost this centerpiece of the American heritage, but also that
America’s economy has lost its equilibrium. Like a ship caught in a vortex, we are spinning past recession and, according to some economists, we are dangerously close to a 1929-style calamity.
Many political leaders throw up their hands. In essence, they say there is nothing they can do.
There is an answer. At the state level, Gov. Crist should convene a panel of academic experts and ordinary citizens, none of whom are in government, and none who are part of the elite financial class that created this mess.
It is not that the problem is insoluble; it is that the groups of people who are doing the thinking have a vested interest in business as usual.
The second thing that needs to happen is that homeowners under the cloud of the gathering storm of economic despair should form political action committees. There must be accountability. These committees would evaluate candidates on whether they have concrete solutions to the current crisis.
Homeowners could then start voting with their feet, and boot out of office those leaders who are not responsive to their needs.
I’m reminded of the airline pilots who said that they could not make their flights on time because of the weather. When the airline decreed that pilots would lose pay for being late, the weather started getting better.
Donald Jones is a professor of law at the University of Miami in Coral Gables.
Donald Jones • DJones@Law.miami.edu