Debt: What It Is and Why We Fight It
Continued from previous page
Most of the really creative economic theory work going on right now explaining this depression is looking at debt levels, and they’re looking at places where foreclosures happen. And they say, you know what—now, to you, this may not be shocking, but if you’re an economist who deals with a lot of abstract models, this might be kind of shocking—places that are hugely indebted are not having a lot of growth. They’re not really healthy economic regions. Some people might win a Nobel Prize for this; I just want you to be ready for it. Because, from their point of view, every debtor has a creditor, and if the debtor’s struggling and drowning, the creditor’s going to be bouncing around, even happier. That’s actually not how it happens. So you’re seeing a lot more mainstream people. William Galston of Brookings, a senior economic wonk there, is calling for debt relief on housing. This is very shocking, right; this is not stuff you normally hear [from a centrist think tank]. So you’re looking there, and you’re seeing that housing debt is really detrimental: Foreclosures have huge costs to municipalities; they have huge costs to communities; they have huge costs to the people who go through them.
I want to emphasize one quick thing that wasn’t quite addressed by the previous panel: Why are so many foreclosures happening? Why isn’t the system naturally fixing itself? It’s an important question. The same predatory model that created all this bad stuff is the same model—it’s the same exact people, and it’s the same logic that’s supposed to try to mediate it now that it’s all collapsed. And, as we’re finding, they’re both irresponsible and incompetent in doing it. So Wall Street essentially acts as middlemen for these giant securitization bonds, and they’re supposed to handle these mortgages when they go bad. However, they’re paid first, out of any claim that happens afterward. They have no incentive to make sure these things work out. If you’re paid first, and you have no penalty if something goes under, what are you going to do? You are going to try to drive someone into bankruptcy; you’re going to try to drive the most fees on them, because you get paid those fees first.
So if you are a community activist and you’re looking at communities saying, this bank is incredibly aggressive in trying to get this person into foreclosure, even though, “Why do they want to own a home that’s going to be worth nothing with no one in it? It’s going to collapse.” The answer is they don’t care; they’re incentivized to do that.
There are ways to target that. In addition to forcing people into foreclosure very quickly, they’re not creating the paperwork necessary to foreclose—this is why you hear about the robo-signing scandals. If you’re going to be involved with Occupy Foreclosure, it’s worth taking a weekend and just educating yourself on what we’re referring to as foreclosure fraud. There’ve been a lot of primers on it—Yves Smith at Naked Capitalism; Dave Dayen at Firedoglake; the Huffington Post. Essentially, the banks are not even bothering to do the basic legal minimum. So what does that mean? Dave Dayen talked to a Register of Deeds in North Carolina. The Register of Deeds is not a radical person—this is one of the most boring civil servants you can imagine. But this guy became—in some small circles that I follow—Public Enemy #1 of the banks, because he actually went into the deeds and said, “You know, the banks have destroyed all these records. They haven’t submitted any of them correctly, and everything’s kind of wrong about them.” The amazing thing is that after he started asking questions, he was invited to meet President Obama two weeks later; it’s a totally amazing story. The Attorney General in Nevada said, “We’re going to pass a law saying, ‘If you submit incorrect documents for foreclosure, that’s a criminal penalty—and it actually sort of was already one, but we’re going to reemphasize that we will enforce it now.’” The moment they did that, foreclosure stopped across the state. Nevada is 70 percent underwater, the highest foreclosure rate possibly in history, but certainly in the country. Foreclosure just stopped immediately, because the banks are just not equipped or interested in following the rules—very bank-friendly rules, incidentally. As opposed to the Obama Administration, or certainly people in administration who maybe want to end up on Wall Street after the administration’s over, the Register of Deeds is not going to retire to a vice presidency at Goldman Sachs, right? The Attorney General of Nevada is probably not going to end up working for the Bank of America. These are people who see the devastation in their neighborhood, in their community, in their state; they want to work to try to fight them. So there’s a lot of room for cross-collaboration on the state and local level for foreclosure relief.