Getting Uglier Before It Gets Better
Alyssa Katz, author of a new book on the mortgage crisis, talks about how unremorseful Wall Street is, the 8.1 million more foreclosures we’ll see, and what we can do now.
By Daniel Strauss
July 16, 2009
Alyssa Katz, author and journalistAmerica is addicted to home ownership, and it is precisely that addiction that has helped lead us into the mortgage crisis and subsequent financial crisis we experience today. So argues Alyssa Katz, an author and journalist, in her new book Our Lot: How Real Estate Came To Own Us, which details exactly how we got into this mess. Katz has written for Mother Jones, New York, and The American Prospect. She is also an editorial consultant for the Pratt Center for Community Development, an organization that works on urban planning in New York City. She was formerly editor-in-chief of City Limits. Katz recently sat down with Campus Progress to discuss how unremorseful Wall Street is, the 8.1 million more foreclosures we’ll see, and what we can do now.
How does your book increase an understanding of the mortgage crisis?
One of the big points of the book is to say this isn’t just machinations on the part of investment bankers creating mortgage backed securities and in pushing mortgages with lending standards on to an unsuspecting public—although that’s certainly a big part of the story. So much of it has to do with the psychology of “what happened across the country?” [People are asking questions like] why and how was it borrowers ended up taking out loans that they couldn’t repay? And also, how was it that there was so much obscurity about the political history of what has happened?
I don’t think my book suggests buyers were out there hungering to borrow more, to become deeply indebted. It was more that we had a political environment in which this level of borrowing and this level of aspiration through buying property and trading is really actively encouraged.
Was there any hesitance within these big Wall Street firms about what they were doing?
Nope. If I had found a glimmer of that over the past 20 years it would have been in the book because honestly it would’ve been dramatically interesting. There was no dissenting movement like what one might have among, let’s say, doctors for healthcare reform or some other industry movement rebelling against trends that were obviously not going to be sustainable. I mean on the contrary, just at every level of this very complex, interconnected industry there are so many players who depended on one another for their survival and for the growth of the business.
I describe it in the book as a food chain. Everyone from mortgage brokers and appraisers and realtors [are] on the front line setting up borrowers and buyers with properties and with loans that are all interdependent because how much one can borrow depends on how much a property is appraised for and whether or not the sales transaction can go through for the realtor depends on whether the borrower can get a mortgage. So what you have is just a really intense level of cooperation and collusion between those players and then in turn the broker is making a loan that is originated by a mortgage company. That mortgage lender sells those loans to an investment bank or another financial firm that funnels which turns into securities—every figure in that chain depended on the one before it. There’s a whole cast of characters.
Was the disastrous trading that brought the crisis about something more than greed?
On an individual level, certainly among industry players such as mortgage brokers that I’d interviewed that’s consistently what I’d hear. And it actually makes sense from the point of view of any one individual system, they were making a living, they were working—by and large, although there [are] big exceptions there—within the law.
The problem is they were setting up borrowers with debt that might make sense if value continued to appreciate, but of course they didn’t and that was a fatal assumption. It wasn’t just that borrowers bought into [it] or [what] lenders did; it went all the way up to those investment banks that were securitizing the loans, creating derivatives and selling those as well, and that ultimately was the central delusion that really drove this all.
So what do we do now? Where does our country go from here in terms of fixing the economy and specifically the housing market?
Well there’s a short term ‘how do we fix the immediate situation’ because that’s still very much with us and there’s a long term question of what policies need to go into play going forward. I’ll start with the first one which is that we’re in the middle right now of a very, very brutal zero sum game and basically the financial institutions that hold a lot of securitized mortgages still on their books and other financial institutions that are just extremely vulnerable right now. They expect huge losses and they don’t have enough capital to back it all up. This is the main reason that we haven’t seen more aggressive interventions on the part of the federal government on behalf of borrowers. Because anything outright short of paying people’s mortgage bills for them, which some out there, including Jon Stewart have suggested isn’t such a bad idea, there’s really nothing the federal government can do to keep those. Basically [we need to] forgive those homeowner’s debts, particularly the principal on their debts and mortgages, and still make good to the investors and the securities backing them.
In other words, if the lenders were to write down the principal mean of what’s much closer to what their houses are actually worth, and much closer to what they could pay, the losses to financial institutions would be devastating. It’s simply not in the cards right now.
We’re going to continue to see a lot more foreclosures. I mean we have projections from that there are going to be 8.1 million over the next few years —an astoundingly high number. So it’s going to be very ugly before it gets better.
That sounds pretty bleak. I’ve sort of given up on ever owning a home myself and just resigned myself to living my life out in apartments. Is there any chance that I might buy a home one day?
I don’t think you have to worry about whether or not you will own a house. I think that the commitment to the homeownership as a government policy and as a means of social mobility is very much front of center in Washington right now. And when you look at the Obama administration’s reform plan, it’s all about making sure that you—you personally—will be a homeowner in the future.
I think the bigger concern going forward is that I do think government needs to both make homeownership a possibility but also make other options viable, I think renters in this country have been dealt a really lousy hand. That’s both in the law and culture. When you look at home ownership as an institution functions in Europe and other parts of the world, what you see is that you don’t have this monoculture of owning a home is the only acceptable option. Renting is viable; renters have more protections, more rights, and more opportunities, to get housing and so on. Home ownership isn’t an obligatory path of a citizen and I do think we need to get to that point in this country where renters are on equal footing and we don’t have the system that goes on now in the tax code and many other areas of life where anyone who is reenter says “All I want to do is get out.” I think that’s one thing that’s lead too many renters to want to buy when maybe that wasn’t the right choice—I know I was one of them.
Daniel Strauss is a staff writer for Campus Progress. He is currently an intern at Democracy: A Journal of Ideas and a senior at the University of Michigan.
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Nice interview. I’ve heard Alyssa Katz on public radio before and I definitely agree on her point that we need parity between how the federal government treats buyers and renters.
— Rob - Jul 16, 12:24 PM - #