The American dream is a nightmare of foreclosures

Las Vegas – known best for its gambling haunts – now has a new reputation. It’s America’s No.1 city for foreclosures, with more people losing their homes here than elsewhere in the country.

Artist Emily Kennerk has created a 22-hour video installation which shows an image of every home foreclosed in 2009. (Foreclosure is the legal process whereby a bank or lender obtains a court order that terminates the borrower’s right of redemption. It is harsher than repossession).

Describing her installation, Kennerk says as you walk around the town you can’t help but see “this ghost town is forming around you. It’s broader than Las Vegas. This is the first generation that’s going to have to deal with the death of the American dream”.

More than four million US homes have been repossessed in the past three years. A website currently lists 2,304,257 foreclosed properties in the US. In the state of Nevada where unemployment stands at 14%, more than six out of ten of all home sales are currently from foreclosures.

At the start of the sub-prime mortgage crisis, back in September 2008, the US Treasury took the mortgage giants Fannie Mae and Freddy Mac into government “conservatorship”. These two mortgage corporations were set up under Roosevelt’s New Deal during the Great Depression of the 1930s. Along with Ginnie Mae (the Government National Mortgage Association) they currently guarantee $5 trillion in US mortgages and 96.5% of all newly originated mortgages in the US.

So far the government has injected $145 billion into them to cover their losses. The mortgage market now is almost a wholly owned subsidiary of the United States government, according to former Federal Reserve chairman Paul Volker. "Almost all the mortgages made now are insured by the government, bought by the government, and the guys at Fannie Mae and Freddie Mac are the market . . . It’s clear Fannie Mae and Freddie Mac need to go. "

But the US is not only affected by a housing crisis. The malaise goes far, far deeper. Three trends have come together. Economists estimate that the annual incomes of the bottom 90% of Americans have risen only 10 per cent in real terms over the past 37 years while the incomes of the top 1 per cent have tripled.

Thus, a “slow economic strangulation”, which began well before the Great Stagnation, now means that income mobility is declining just as inequality rises sharply. Even families with a gross joint income of $70,000 per year, are only “a pay check or two from the streets” as one Minneapolis worker puts it. Medical expenses are a nightmare. Even families on twice the US median joint income have to borrow heavily to have essential, life-saving operations.

Arthur Miller’s 1949 play, Death of a Salesman, dramatised the anxieties arising from US Great Depression of the 1930s and the reliance on credit to provide necessities. During the Cold War years, such plays were seen as an attack on great American dream. But in today’s Great Stagnation, following the years of easy debt-fuelled consumer credit, which analysts call the “Great Moderation”, it’s certainly not playwrights who are pricking the dream-bubble.

The inability of the capitalist system, not only to ensure the fundamental necessities of life, but the very notion of a positive future is self-evident. Cities and states are staring at bankruptcy while trillions of government dollars have failed to revive the economy. As American comedian George Carlin quipped: “It’s called the American Dream because you have to be asleep to believe in it.”

Corinna Lotz
A World to Win secretary

Millions in mortgage crisis

The thing about capitalism is that it appears to solve problems only to recreate them in a new, more dramatic form. Take housing, for example. Until recently it seemed that everyone could buy a home, watch its value rise and borrow against the property to buy consumer goods to keep the economy moving. Now up to two million households in Britain and a similar number in the United States face a struggle to retain their homes as the economic and financial crisis takes its toll.

The Financial Services Authority (FSA) has expressed concerns that many homeowners with large mortgages could face repossession. Listing the warning signs, the FSA says problem mortgages are those where the loan was taken out for longer than 25 years, where it is worth more than 90% of the home and where the amount borrowed is 3.5 times or greater than income. Over a third of 5.7m mortgages sold between April 2005 and September 2007 fall into one or more of these categories. In other words, two million households are at risk. The alarm bells got louder today as surveyors predicted that 123 homes a day will be repossessed this year.

What the FSA is concerned about is that rising household energy and food bills, together with big credit card and other debts, leaves many homeowners badly prepared for worsening economic conditions. Banks are also increasingly reluctant to pass on interest rate cuts to borrowers because of the credit crunch that has undermined the financial system. When you add in the fact that 1.4m fixed-rate mortgages are due to mature in the next 12 months, you can understand the FSA’s concerns.

Lyndon Nelson, the FSA's head of financial strategy and risk, said: "It is not necessarily the affordability of the mortgage. It is their other debt. Customers with other borrowing in addition to the mortgage are struggling. The other borrowings tip them over the edge," he said. Just as in America, where some 2.2m foreclosure documents - including default notices, auction sale notices and repossession papers - were filed on 1.28m properties during 2007, many recent mortgages were taken out by households who were lured by the promise of easy money but who did not necessarily have the means to pay.

A key role in creating this housing crisis has been played by New Labour. From the start, they cut back on the building of new social housing for affordable rent as they continued the Tory policy of creating a “property-owning democracy”. People like nurses and teachers have been lured into expensive “shared ownership” schemes built by housing associations on the basis that is the key to long-term wealth. In effect, the financing of such schemes amounts to a subsidy from the state to banks in order to compel more people to buy a house or a flat because they are desperate for somewhere to live.

The impending housing crisis is further proof that the market economy is a trap for millions of ordinary people. Unlike bank directors, they do not have the wherewithal to ride out the economic storm. A campaign should begin to halt all repossessions as the first step towards reorganising the financial system altogether. Unrealistic mortgages could be converted into affordable rents or other forms of payment as part of transforming the provision of housing. Land should be owned in common rather than by private developers and social rather than market solutions to the basic right to shelter have to be sorted out so that new households can find somewhere to live. Above all, we must prevent working people from becoming the victims of a policy foisted on them by governments and banks.

Paul Feldman
AWTW communications editor