Because of the reckless and irresponsible financial practices of Wall Street, the United States now faces an unprecedented crisis: millions of our fellow citizens are being evicted from their homes through foreclosures. Foreclosures and evictions are already at a multi-decade high. If the crisis continues to deepen at the current pace, at least five million homes will face foreclosure during 2008. Those who rent apartments, even those with signed leases, are being kicked out of their homes when the apartment buildings where they live are foreclosed on. As you can see, this situation has gotten appreciably worse since I first issued my call for freezing foreclosures last autumn. And at least five million evicted families will mean about ten to fifteen million people evicted, the biggest domestic refugee problem since the Dust Bowl called forth the grapes of wrath back during the Great Depression. It will be a national disaster on the scale of a hundred Katrinas, threatening to rend the fabric of civilization in many regions.
Immediate Congressional action is mandatory to stop this gigantic human tragedy. The main point of a solution is crystal clear: we need a uniform federal law that will stop any and all foreclosures for the entire duration of the present world economic crisis. No foreclosures, not for any reason. Period. This means for at least five years. It may take longer. But, no matter how long it takes, we must make sure that no family will be thrown out of their home because of a default on mortgage payments. This applies to all persons and all families under US jurisdiction, wherever our laws can reach, without exceptions of any kind. Whatever their race, creed, color, or national origin. That is because all people need a roof over their heads. We must guarantee that no family farm or other farm will be shut down because of foreclosures. That is because people need to eat. We must be absolutely certain that no hospital will be forced to close its doors because of debt default. That is because people need health care in order to live. We must also take measures to prevent the shutdown of necessary infrastructure: no airline, no railroad, no trucking firm or taxi company, no ferry, no electric or gas company or other public utility must be shut down because of foreclosure or debt. That is because economic life must go on, and people must survive. No factory must be shut down because of foreclosure, because we need to produce the goods that human survival requires. In all of these cases, the demands of the bankers and hedge fund operators must take a back seat to real human needs and the needs of families.
Apologists for the big banks and hedge funds, the spokesmen for Wall Street, will argue that if these people are evicted it is their own fault, because they bought more house than they can afford. Reality is much different. Many people have been sold so-called adjustable rate mortgages with deceptively low teaser rates. These ARMs as they are called are cynical exercises in consumer fraud. After a short honeymoon with the teaser rate, these mortgages re-set – meaning that they jump to a much higher rate, sometimes governed by LIBOR, an interest rate among foreign bankers in London. The re-set may mean an increase of 30% to 50% in the monthly payment. At that point, a cash-strapped family has to choose between meeting the mortgage payment, or paying for fuel, heating, or health care. No family in America should be forced into such a terrible situation, and I propose to end such practices right now. And remember that one of the super-salesmen in chief for all this was none other than George W. Bush, who in his 2004 campaign for re-election touted the unprecedented level of home ownership in this country. But Bush never warned us about the huge dangers of adjustable rate mortgages. Anybody who believed Bush’s rosy scenario is now left holding the bag.
At the same time and by the same token, we cannot protect hedge funds, mortgage brokers, or other high-risk financial operations. Nor can we do anything to maintain the bloated valuations of bank stocks and bonds. Institutions like Citibank, Goldman Sachs, Morgan Stanley, J.P. Morgan Chase, and Bank of America are simply financial black holes, capable of swallowing up infinite amounts of financial resources, without changing anything about the situation.
Critics will argue that stopping foreclosures will somehow hurt local bankers, which they want us to imagine as a modern version of Jimmy Stewart in It’s a Wonderful Life. This is a con job – or perhaps I should say neo-con job. The reality is that mortgages are not held any more by local banks or local brokers. They are made into mortgage-backed securities or collateralized debt obligations and become part of the $800 TRILLION worldwide derivatives bubble. The current crisis is basically the collapse of this gigantic derivatives bubble. Read the story of the collateralized debt obligation called NORMA, set up with the help of Merrill Lynch, which was written up over the holidays in the Wall Street Journal. There you can find the lurid and obscene details of how modern hedge-fund speculation works. There is no power in the universe capable of stopping the collapse of $800 trillion – soon almost one QUADRILLION – of derivatives. This is many times the total value of planet earth. It is far beyond saving. Evicting five million families will not do anything to save this bubble from crashing down. As all experts agree, every foreclosure makes matters worse, since one foreclosed home can undermine home prices in an entire neighborhood. But we cannot worry about home prices one way or another. This crisis is so severe that we must focus on one thing only: keeping a roof over people’s heads so that life can go on. That is why we urgently need a uniform federal law to stop all foreclosures on homes, farms, factories, hospitals, and infrastructure, and to do this in an orderly and predictable way.
Will the mortgage holders eventually pay? And if they do, how much will they pay? This complex of issues should not delay us now. They can be worked out later. There will be time for that once the depression has been defeated and mastered. Right now we cannot waste time trying to prop up the colossal edifice of almost one quadrillion dollars of derivatives, mortgage backed securities, and collateralized debt obligations, using the -- relatively -- wretched pittances of America’s distressed homeowners from the middle class and the lower middle class. It simply cannot be done, and it should not be tried, since even trying will literally ruin millions of lives, all for no purpose.
One critic claims that my plan will require a constitutional amendment. That is an absurdity in constitutional terms. A freeze on foreclosures was in fact enacted during the first Roosevelt administration in the form of the Home Owners' Loan Act of June 1933 – a product of the Hundred Days-- as supplemented by the National House Act of 1934. No constitutional problems were encountered, except in the troubled imaginations of reactionaries.
Today, the freeze could in theory be accomplished by executive order under the Defense Production Act, or simply under the inherent powers and the implied powers of the presidency as established by numerous precedents. No need to declare a special state of national emergency – we already have one. But we have no real president, so don’t hold your breath waiting for George Bush to put the lives of real people above Wall Street’s mass of kited toxic paper.
So that leaves the path of legislation, followed by veto override. If they want to impress New Hampshire, Senators like Obama, Clinton, and McCain, plus Congressmen Kucinich and Paul ought to ram my bill through the Congress this week – tomorrow. Let Bush veto it, and then override that veto. We demand action, and action now. We don’t need more promises on the stump – we need concrete action right now as an advance security deposit from those candidates who are already in office.
Another critic said that my proposal was dangerously radical and hopelessly naïve – out of step with financial globalization, presumably. That was before my proposal was imitated by Hillary Clinton, the most right-wing of all the major Democratic candidates began talking about freezing foreclosures– except that Hillary would stop foreclosures for a mere 90 days, not the five years plus x that I am demanding. It sure can’t be that radical if Hillary is supporting it.
Would my bill cause a general financial panic, as others have suggested? It is too late for that. The financial panic, the world economic breakdown, the systemic crisis, the contraction, the disintegration of the world monetary arrangements, hyperinflation, the banking panic – all of that is already launched and ongoing, starting slowly and gathering momentum as we go along. It is too late to avoid the crisis. It is only a question of whether we can shield humanity from the consequences of the crash.
My approach to foreclosures is also offered as a case study of how to deal with each new turn in the breakdown crisis. In every new phase, we will be faced with the choice between the attempt to maintain the values of Wall Street’s toxic paper on the one hand, and defending the lives and welfare of our people on the other. I hope it is clear that I will always choose to protect people over the vain effort to shore up toxic paper. Before too long we will probably have to solve additional problems.
Because of the destructive role of hedge funds, for example, we will need to re-regulate them, and subject them to the enhanced scrutiny of the Securities and Exchange Commission. Since the essence of a hedge fund is that it can escape the oversight of the SEC, this is the same thing as saying that hedge funds should be outlawed. And that is what I do say. We should outlaw hedge funds. We do not need the jackal fund, the hyena fund, the lamprey fund, the vulture fund, the raptor fund (that one really existed), the vampire fund, or the tick fund. We did very well without them, ad we will do better without them once again.
Then there is the issue of what to do about draining the derivatives swamp of 1 quadrillion dollars worth of bankrupt paper. One approach would be to outlaw derivatives. Another approach, which I favor, would be to tax them by a nominal one per cent. That would be an example of the Tobin tax or securities transfer tax (STT). In most states, people pay a sales tax of five to eight per cent on everything they buy, including clothing and shoes for their children. In many states, supermarket purchases in the form of family groceries are taxed. Won’t the bankers and hedge fund operators pay their fair share? Right now the astronomical turnover in Wall Street, Chicago, and the other markets is not taxed at all – the bankers get a complete free ride! Surely people that are so rich could afford to pay 1%, if the little people are paying five or six or seven times that. So if the US has $750 trillion of derivatives, a mere nominal 1% would give us $7.5 trillion in revenue – enough to take care of Social Security, Medicare, Medicaid, Head Start, WIC, and many more, while getting to work on rebuilding some of our crumbling infrastructure. That kind of new revenue would open the door to a comprehensive tax reform, lifting the tax burden entirely off families of four with up to $125,000 in income, just for starters
There will be other tasks before long. We will have to think about ending the current free trade regime. We will have to consider the problem of nationalizing the Federal Reserve System, taking it out of private hands and making it a powerful engine of cheap federal credit for jobs and production in farms, factories, mines, transportation, and infrastructure. But we have enough on our plate for now, so I will turn to these questions shortly.
In the meantime, my call for a freeze of all foreclosures has generated a great deal of interest all around the country on the part of bloggers, candidates, and the political grass roots.