HOW THE FEDERAL GOVERNMENT TAUGHT SUBURBANITES TO BE RACISTS

By the way, this isn't a story about a conspiracy. It is a story about inherent, systemic racism and business as usual. Be advised, however, that just because we've been taught to bark at the conspiracy theorists when the bell rings, conspiracies are alive and well in America.--Pete

[FDR's Home Owners Loan Corporation, the HOLC,] figured out how real-estate markets worked and systemized an appraisal methodology that would help banks, lenders, and home owners guarantee the investment value of their properties. People were not about to take out mortgages to buy homes in neighborhoods that might go down in value. Banks were not inclined to lend the money, either. The long-term financial commitment of a thirty-year mortgage meant ensuring that the main characteristics of a neighborhood remained stable over time.

Instead of measuring this stability in terms of civic participation, church membership, community reinvestment, or local volunteerism, the HOLC evaluated neighborhoods through more familiar statistics: age, jobs, income, housing materials, and, most of all, race. The new, mathematically justified system for classifying neighborhoods became known as "red lining." The scheme used colors, letters, and numbers to code the desirability and investment value of different neighborhoods. Green was the best - a homogeneous, perpetually high-demand area, occupied by white businessmen and professionals, with no Jewish infiltration. Blue was next, for desirable areas that had already reached their peak. Yellow was for neighborhoods in decline, and red was for those already fallen. "Full decline" meant that black people already lived there. . .

Appraisers learned to see any mixing of races as a sign of instability and impending price drops. This logic trickled down to home owners who were tied to big mortgages and had more of a stake in the value of their property than the quality of their lives or, least of all, the eradication of their prejudices. Besides, recognizing the precursors to a neighborhood's infiltration by blacks or Jews meant getting out in time to win a good price for one's home and pay back the mortgage. Getting out too late could mean owing more on a house than it was currently worth. Thanks to the way the federal government promoted home ownership, suburbanites learned to become more racist as a means of financial survival.

http://www.amazon.com/Life-Inc-World-Became-Corporation/dp/1400066891

Capitalism in Crisis: More Socialism for the Lending Industry

Here are two related articles regarding the further collapse of the corporate capitalism economic model. These go far in giving a clear glimpse of the systemic errors inherent in capitalism in its ruthless corporate/fascist phase, errors which are exploited for obscene capital gains and which actually cause the phenomenon called a "bubble".

The first story focuses on voluntary foreclosures, or walk-away's, which happen with increasing frequency of late. People who've suddenly found themselves with a great deal of negative equity are electing to take the credit hit in order to save their financial situation in the long run.

The second talks about the Housing Bill and who will benefit most by its quick passage (hint: It's not debt-saddled consumers!). It also details the coming danger to public and private pension funds.

America's house price time bomb

By Michael Robinson BBC World Service

http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7529277.stm

With the American housing market in its worst crisis since the Great Depression of the 1930s, President Bush is authorising new legislation to pave the way for massive new government intervention designed to slow the slide.

The intervention would come as a little known quirk of US law threatens to drive down house prices even faster.

Faced with seemingly never-ending falls in the value of their properties, some American home-owners are taking radical action; they are choosing to walk away from homes and their mortgages.

In May 2006, at the height of the housing boom, Karen Trainer bought a $500,000 apartment in California - with money borrowed from her bank.

By this year, Karen still owed $500,000 on her mortgage, but her apartment was worth $200,000 less.

So she was deep in negative equity and, to make matters worse, the interest rate on her loan was about to increase.

"I thought 'this is crazy'," Ms Trainer says. "It just does not make financial sense."

Take the hit

Is the bank going to pay for my retirement because I was a good girl and paid my mortgage Karen Trainer

As a successful professional, Karen could comfortably have managed the higher mortgage payments her bank demanded.

Instead, she decided to stop her mortgage payments altogether and let her bank repossess her apartment.

Her credit record will be badly damaged by the decision, but Ms Trainer expects this to recover soon.

"Generally speaking, within 5 years you are about back where you were, so my husband and I decided we'll take the hit and live with it."

Over to the bank

In California and much of the rest of America, there is a powerful incentive for homeowners such as Ms Trainer to walk away from their mortgage obligations.

Michael Robinson's two-part series "The Trouble with Money" is broadcast on 30 July and 6 August on BBC World Service. You can hear the programmes online by going to:

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7529277.stm


The Next Big Bail-Out
By Michael Hudson
http://www.counterpunch.org/hudson07312008.html

The great economic fight of our epoch is being waged by the FIRE sector – Finance, Insurance and Real Estate – against the industrial economy and consumers. Its objective is to maximize property prices and the volume of debt relative to what labor and industry are able to earn.

Rising debts and real estate prices go together, because asset prices depend on how much banks will lend. For creditors, the dream is to obtain an ultimate backup at public expense: government insurance that they will not lose when debtors are unable to pay. The political problem is how to get the government to insure and protect bankers rather than debtors, given that debtors are much more numerous when it comes to the voting booth. In such cases campaign contributions are the balancing factor. Governments are “privatized” and “financialized,” that is, turned from democracies into oligarchies. The banking system aims to make sure that the only losers are the customers it is supposed to serve: debtors, homeowners and employees of companies being “financialized” as the economy is de-industrialized. Indeed, financialization and de-industrialization are becoming almost synonymous. The trick is to get voters to think they are getting rich while actually they are being painted into a debt corner, along with their employers, local government and the federal government too.

For a while the bad-debt overhead can be bailed out by creating yet more debt, backed by public guarantees in what even the Wall Street Journal acknowledges is “socialism for the rich,” that is, privatizing the profit and socializing the losses. But when has government been anything else, for thousands of years before anyone coined the term “socialism”? The so-called July 30 “housing bill” supports the price of mortgages that are the major asset base of most banks and other financial institutions today. What ultimately supports the price of these mortgage packages is the price of the real estate pledged as collateral. And despite Mr. Greenspan’s celebration of soaring housing prices as “wealth creation,” it really was debt creation. As housing prices plunge, the debts remain in place.

The question is, whose balance sheets are to plunge into negative equity territory – those of indebted homeowners, or those of banks that have made the bad loans and the financial institutions (largely pension funds, I’m sorry to say) that have bought “toxic mortgages”?

Read the entire article