Posted in Financial, Foreclosure Defense

A Needless Default by David Dayen

Since approximately 2008, consumers in the United States have seen the majority of their wealth disappear.  David Dayen, in his new post, “A Needless Default“, states that according to economists Emmanuel Saez and Gabriel Zucman, the bottom 90% of Americans have seen at least one-third of their wealth disappear.  That is a staggering number. It means that the middle class is disappearing.  That is one of the reasons why the economy is growing so slowly.  According to John Maynard Keynes, a stable middle class consumption is needed in order to grow investment.  The middle class has always been the backbone of the economy.  Knowing this, why would an Administration favor bailing out the financial industry and not the middle class?

So what happened in the past several years.  For one thing, the financial industry drove the world’s economy to the edge of a very high precipice.  Spurred by the temptation of easy money, the financial industry patented a system for preying on the middle class.  The system was fairly simple really.  All you need to do is lure the consumer to spend more.  Once the consumer had been completely tapped out, you pull the rug from under him/her.  The easiest lure was using the consumer’s equity in their home.  Do you all remember the ads showing you what a fool you were for having credit card payments and car payments?  Just consolidate it all into one simple payment by refinancing your house.  Many fell into this trap.  And when they were at the precipice looking down, the financial industry, just like carrion smelling blood, swooped down and devoured them.  There were just as many who did not fall into these traps and they were also devoured.  The one thing I want to make clear is that the system was patented from beginning to end to ensure that the middle class would be easy prey.  The theft of the middle class wealth was guaranteed, no matter what the middle class did.

But it did not need to happen this way.  The Administration could have favored the middle class over the financial industry.  As David Dayen states:

President Obama will carry several legacies into his final two years in office: a long-sought health care reform, a fiscal stimulus that limited the impact of the Great Recession, a rapid civil rights advance for gay and lesbian Americans. But if Obama owns those triumphs, he must also own this tragedy: the dispossession of at least 5.2 million U.S. homeowner families, the explosion of inequality, and the largest ruination of middle-class wealth in nearly a century. Though some policy failures can be blamed on Republican obstruction, it was within Obama’s power to remedy this one—to ensure that a foreclosure crisis now in its eighth year would actually end, with relief for homeowners to rebuild wealth, and to preserve Americans’ faith that their government will aid them in times of economic struggle.

Faced with numerous options to limit the foreclosure damage, the administration settled on a policy called HAMP, the Home Affordable Modification Program, which was entirely voluntary. Under HAMP, mortgage companies were given financial inducements to modify loans for at-risk borrowers, but the companies alone, not the government, made the decisions on whom to aid and whom to cast off.

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