Recovery Depends Upon Relief: Housing Victims and Workers

Editors Comment: These two articles taken together tell the whole story, although the editorial presumption by the NY Times about median income is just plain wrong, as Reich points out. The simple answer to the recovery is to put money back into the hands of those who spend in an economy that everyone agrees is 70% driven by consumer spending. NO MONEY=NO BUYING. It’s really simple.Put real wages back into the hands of workers and give back the purse stolen from homeowners. Then you’ll have a reality-based economic engine that can drive it’s way back into the game. Without that, I see no hope. This isn’t politics, this is reality and morality. You can’t take jobs away from people and then say it is their “personal responsibility” to do something about it. You can’t take their houses away with trick loans and decrease their pensions with trick securities on Wall Street and then tell them “tough luck, that’s the American way.” Human history doesn’t work that way.

For four decades our economy has been in the business of draining the last ounce of wealth and income out of the the American worker and homeowner. Median income, adjusted for inflation is the same as thirty years ago. Time spent working per year is up by 100 hours per year for men and 200 hours per year for women — and STILL they can’t make ends meet.

It is like a devious conspiratorial plan to destroy the country, but it isn’t that easy. It really is not so devious. It is simply the profit motive gone wild without regulatory authority in use. The game was on but the referees were gone.

What do we have? Income inequality that matches the conditions of 1928, and you might recall from history books what happened the next year. The presumption that people in high places or with great wealth know what they are doing or are somehow smarter than the typical guy on the street is wrong and always has been wrong. And the assumption that this is somehow going to continue to work out well for those at the top is absurd. There is nothing in history to support that assumption. Remember the revolutions here and in France?

What have we allowed? A system that depressed the purchasing power of nearly every American. First we did it by lowering wages without many people noticing because of the effects of inflation. You want to know where housing prices are going? Check with Case-Schiller. They are going where median income went — down the tubes. Then we somehow got the American public to adopt a suicidal strategy. The top 1% said we’ll give you the money to replace the purchasing power you lost but you are going to owe it back to us. Enter the credit card economy, bankruptcies and suicidal depression and strain on every working American. So when there wasn’t anyone else to give credit cards to, they went for the houses, the last bastion of the nest egg of American consumers, and now they have that too.

JUST WHERE DOES ANY REASONABLE RATIONAL PERSON THINK THIS WILL END UP? Where in history have people given up in the end and said OK, we’ll starve to death without a roof over our heads? Keep our money, and we’ll work for free. Tell me where that worked. I really want to know.

September 2, 2010

Housing on the Brink

There was a glimmer of hope in housing data this week. Pending sales — signed contracts between buyers and sellers — rose in July, by 5.2 percent, beating expectations of a modest decline. Sales are still down by 19 percent compared with a year ago. But any sign of activity was a welcome relief because most potential buyers have been sidelined by an array of economic ills: unemployment, job insecurity, fear of further price declines or the inability to get a loan.

If only the uptick was sustainable. Willing buyers today are responding to low mortgage rates — recently 4.3 percent for a 30-year fixed-rate mortgage — and to prices they find fair. By one standard price measure, which compares the cost of renting and owning, homes are as affordable now as they were before the housing bubble. Other measures that compare home prices to household incomes show housing at its most affordable in decades. Together with seller concessions, those dynamics are driving the deals that get done in today’s tough market.

The problem is that reluctant buyers obviously outnumber willing ones, and, in the meantime, swelling inventories from foreclosures presage further price declines. Despite occasional signs of movement, that means general paralysis in the housing market and, coupled with high unemployment, a slowing economy.

Antiforeclosure efforts, done right, are supposed to prevent that downward spiral, but the Obama administration’s efforts to date have been largely unsuccessful, with lenders reluctant to restructure bad loans and officials unable or unwilling to get them to do more. A new round of federal efforts will begin this month, aimed specifically at helping unemployed homeowners and at encouraging principal reductions on loans where borrowers owe more than their homes are worth. That’s better focused but will work only if lenders cooperate.

Meanwhile, the administration should investigate ways to facilitate more refinancing. Fannie Mae and Freddie Mac, the government-controlled mortgage companies, hold millions of mortgages from borrowers who are current on their payments but are unable to refinance because their home equity or credit scores have declined since they first took out their mortgages. Since Fannie and Freddie are at risk if those borrowers default, it makes sense for them to allow the borrowers to refinance to a lower rate, reducing both their payments and the risk that they will be unable to pay.

A bolstered refinancing effort would have to be monitored to ensure that potential risks to Fannie and Freddie are offset by potential gains to homeowners and the economy. One thing is sure. More needs to be done to prevent further weakening in a wavering market.

How to End the Great Recession


Berkeley, Calif.

THIS promises to be the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor — most of the rest of us — are unemployed, underemployed or underwater. The Labor Department reported on Friday that just 67,000 new private-sector jobs were created in August, while at least 125,000 are needed to keep up with the growth of the potential work force.

The national economy isn’t escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working: near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package and tax credits for small businesses that hire the long-term unemployed have all failed to do enough.

That’s because the real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven’t kept up with what the growing economy could and should have been able to provide them.

This crisis began decades ago when a new wave of technology — things like satellite communications, container ships, computers and eventually the Internet — made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.

But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).

Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.

When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless — as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.

Eventually, of course, the debt bubble burst — and with it, the last coping mechanism. Now we’re left to deal with the underlying problem that we’ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing.

Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.

It’s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.

The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns — sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.

Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can’t be sustained, at some point — 1929 and 2008 offer ready examples — the bill comes due.

This time around, policymakers had knowledge their counterparts didn’t have in 1929; they knew they could avoid immediate financial calamity by flooding the economy with money. But, paradoxically, averting another Great Depression-like calamity removed political pressure for more fundamental reform. We’re left instead with a long and seemingly endless Great Jobs Recession.

THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures — Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage — leveled the playing field.

In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America’s middle class shared more of the economy’s gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.

By contrast, little has been done since 2008 to widen the circle of prosperity. Health-care reform is an important step forward but it’s not nearly enough.

What else could be done to raise wages and thereby spur the economy? We might consider, for example, extending the earned income tax credit all the way up through the middle class, and paying for it with a tax on carbon. Or exempting the first $20,000 of income from payroll taxes and paying for it with a payroll tax on incomes over $250,000.

In the longer term, Americans must be better prepared to succeed in the global, high-tech economy. Early childhood education should be more widely available, paid for by a small 0.5 percent fee on all financial transactions. Public universities should be free; in return, graduates would then be required to pay back 10 percent of their first 10 years of full-time income.

Another step: workers who lose their jobs and have to settle for positions that pay less could qualify for “earnings insurance” that would pay half the salary difference for two years; such a program would probably prove less expensive than extended unemployment benefits.

These measures would not enlarge the budget deficit because they would be paid for. In fact, such moves would help reduce the long-term deficits by getting more Americans back to work and the economy growing again.

Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth — and that’s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession.

Robert B. Reich, a secretary of labor in the Clinton administration, is a professor of public policy at the University of California, Berkeley, and the author of the forthcoming “Aftershock: The Next Economy and America’s Future.”

This piece has been updated to reflect today’s news.

13 Responses

  1. Excerpt from “The Creature From Jeckyll Island” at:

    The Mandrake Mechanism

    When banks place credits into your checking account, they are merely pretending to lend you money. In reality, they have nothing to lend. Even the money that non-indebted depositors have placed with them was originally created out of nothing in response to someone else’s loan. So what entitles the banks to collect rent on nothing? It is immaterial that men everywhere are forced by law to accept these nothing certificates in exchange for real goods and services. We are talking here, not about what is legal, but what is moral. As Thomas Jefferson observed at the time of his protracted battle against central banking in the United States, “No one has a natural right to the trade of money lender, but he who has money to lend.”9

    third reason to abolish the system

    Centuries ago, usury was defined as any interest charged for a loan. Modern usage has redefined it as excessive interest. Certainly, any amount of interest charged for a pretended loan is excessive. The dictionary, therefore, needs a new definition. Usury: The charging of any interest on a loan of fiat money.

    Let us, therefore, look at debt and interest in this light. Thomas Edison summed up the immorality of the system when he said:

    People who will not turn a shovel of dirt on the project nor contribute a pound of materials will collect more money…than will the people who will supply all the materials and do all the work.10

    Is that an exaggeration? Let us consider the purchase of a $100,000 home in which $30,000 represents the cost of the land, architect’s fee, sales commissions, building permits, and that sort of thing and $70,000 is the cost of labor and building materials. If the home buyer puts up $30,000 as a down payment, then $70,000 must be borrowed. If the loan is issued at 11% over a 30-year period, the amount of interest paid will be $167,806. That means the amount paid to those who loan the money is about 2 1/2 times greater than paid to those who provide all the labor and all the materials. It is true that this figure represents the time-value of that money over thirty years and easily could be justified on the basis that a lender deserves to be compensated for surrendering the use of his capital for half a lifetime. But that assumes the lender actually had something to surrender, that he had earned the capital, saved it, and then loaned it for construction of someone else’s house. What are we to think, however, about a lender who did nothing to earn the money, had not saved it, and, in fact, simply created it out of thin air? What is the time-value of nothing?

  2. What are we actually paying for?
    If we did our job like they (the fed/gov)did we would either be fired or in jail. MOstly here lately in jail. Just like the documentary Plunder. We don’t need The government bailout, we need a Jailout. The banksters should all be in jail. But No!! They get huge bonuses to put us out on the street. What the hell kind of freedom is this? With government backing. You know if we didn’t put our hard earned cash into their dam banks what the hell would they have to play with. Our taxes and social security. Which Bush tried like hell to privatize. They lost all of that and now we had to pay for those losses again and again and again. What is worse they are still playing. This is the biggest PONZI scheme of all. The only thing Madoff did wrong was not getting a bank charter from the federal government and paying his fdic insurance premium.
    We need to wake the hell up!! Take your money out and what do they have? NOTHING!!!
    I watched the Fed Berbanke testify in front of the committee and he is nothing but a dam liar.
    The federal government gets so much of our money and fails all of its responsiblities. They don’t do shit.
    Security failed 9/11. FDA killing us constantly food and drugs. Sec stock frauds. FDIC bank frauds. Immigration they do nothing. Bp oil spill. Corporations fracking and polluting your water.Agri business gmo foods causing cancer and polluting your water supply with cancer provin drugs, etc,etc,etc.
    We are paying for a bunch of assholes to make laws that go NOWHERE.
    Everyone needs to vote and for someone that’s never been in office. I don’t care from what party. Get rid of the government MAFIA NOW.
    Don’t listen to their stupid adds. The 6 media companies controll who gets air time and who don’t and how much it cost. That’s BS. That is why we have these problems.
    My sister work in DC for awhile and her discription of the culture made me sick.
    WE need to organize and take our country back.
    The Sheeple need to wake up and participate in our democracy. We also should have the right to audit the voting process because of the fraud from the BUSH ADM. okayed by the supreme court.
    This seems to be one of only a handfull of sites that actually are aware of the actual situation.
    Thanks Neil

  3. What are the Federal Reserve’s responsibilities?

    think about it..
    who is the federal reserve ?
    the international banking cartel.
    What are the Federal Reserve’s responsibilities? Power&profit for themselves period. History has deftly shown the onerous banking cartel has infested ,corrupted , and controls the entire planet regardless of the monetary policy.

  4. “Some people think the Federal Reserve Banks are U.S. government institutions. They are not . . . they are private credit monopolies which prey upon the people of the U.S. for the benefit of themselves and their foreign and domestic swindlers, and rich and predatory money lenders. The sack of the United States by the Fed is the greatest crime in history. Every effort has been made by the Fed to conceal its powers, but the truth is the Fed has usurped the government. It controls everything here and it controls all our foreign relations. It makes and breaks governments at will.”

    — Congressman Charles McFadden, Chairman, House Banking and Currency Committee, June 10, 1932

  5. From:

    What are the Federal Reserve’s responsibilities?
    Today, the Federal Reserve’s responsibilities fall into four general areas:

    ~ conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices


    ~ supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers

    FAIL! Miserably!!

    ~ maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

    FAIL! Completely!!!

    ~ providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation’s payments systems

    WTF? Providing certain financial services to….all of the above who are now insolvent thanks to the federal reserve’s brilliant leadership role (items 1 thru 3 above) during these difficult economic times? And…”playing a major role in operating the nation’s payment systems?” Such as….printing federal reserve notes and passing them out to you and all of the other bankers? Just exactly what is there about that “payment system” that couldn’t be achieved free of your usury fees by the U.S. government itself?

    You Fed guys and your plutocracy make me sick. How much longer do we have to listen to this BS rhetoric before the much welcomed anarchy and revolution begins? We are so overdue for an upheaval.

  6. I have been following this site for awhile. Since I have mers on my loan. I watched the federal reserve of governors show today on cspan concerning the foreclosure problems. They met with quite a few concerned community organizers concerning the problems of the vacant houses. The biggest problem several large metropliton cities ask the committy was why they can’t even get a list of the foreclosures from the FDIC when they take over a bank. They go to the county and there are no records. The evidence they have found is that the FDIC gives everything to investors immediately and are bypassing the state laws. I am not normally a conspiracy theorist but this looks like mmmmore fraud by the FED against the state laws. Such as MERS. The Banks are run by the Federal Reserve and I am sure do what they are told. So I also learned that these investors are not registered in the county records and are not renting or selling the houses. This will collapse all county taxes because of illegal just sitting on them.short sales. More fraud. This question was put to 5 federal bank representatives and they would not answer. They said they didn’t know anything about it.
    They don’t want to refi you they want your property. That way they make 4 times the price for what they paid for it. Then they sit on it. Screw the county,state,cities and you. The federal government owns all these properties now and the states ,counties, cities are screwed. If they don’t rent or sale or pay the taxes how can they collect from the federal government? Now who owns the state what will actually happen to the property values? They will go to whatever at their discrection. I am going to my county court house every month and start video taping these so called foreclosures with witnesses to make sure they are really following the law and then turned their ass in. You should check it out yourself to see if they are really following the laws. I am in Texas a non judicial state so it’s easy for them and that needs to be changed now. When I get a video I’ll download it. If they are perpetrating more fraud let’s just verify it and make a great movie.
    PS Neil you are awesome for doing this.
    Thank you all for your info
    The person that said ignorance was bliss was on the receiving end and right now that is not the American public.

  7. “recovery has to do with alot more than housing.”

    This is the solution in a nutshell, anything else is only stalling the inevitable, the collapse of America as we knew it.
    The evidence of fraud is everywhere, in every mortgage.
    How do I know this?
    I was trained as a mortgage broker to set the borrower up to default on the note, not right away, but within 5yrs.
    It was a scam from the start, and we had better fix this and quick by acknowledging that it is a scam!
    There is no other way to restore order and prosperity.
    If the laws don’t apply equally to all of us, then there is no reason for any of us to obey them.
    And when the law breaks down there is anarchy and revolution coming.
    Now the government has to admit that the lenders committed fraud on a massive scale and fix that by putting them all in jail.
    The very thing the government is promoting is never going to help!
    By allowing the banks to continue the fraud by modify loans and refinancing, it’s giving them a second chance to screw the homeowners. The first loans were frauds and any modification is just as bid a rip off as the first loans were!
    You can’t collect on something that was sold to somebody else! You got your money, now the other person owns it!
    They sold the loans, bundled them up and sold them, they lied to everyone! It’s fraud from start to finish and that is what we can’t forget or let go unchecked!

    This is the lie that is so big, so huge that it’s defies belief, and that is the problem, not too big to fail, too big to comprehend it could be.
    That lets the pretender lender will have win, they brought the nation to its knees and made us pay the ransom but they won’t let us go free.
    They are trying to keep everybody running around doing the “right thing” while they are still using the homes as collateral for more bad deals! They won’t quit till we make them quit!

    All the president has to do is declare all mortgages null and void, period. Put the banksters in jail, give back the homes and form a whole new banking system that is not controlled by the super rich.
    A national bank or credit union will have to be set up before anyone will truly have faith in it.
    For too many years the business of government has been business. Now it’s time for the government to take care of the people who make the government possible.
    Those of us who are not out in the streets rioting, not burning businesses, not attacking the gated enclaves of the super rich and not blowing up banks.
    Just because a business has made a lot of money doesn’t give it the right and protection of the government to keep on gouging, stealing, and forcing people into poverty. And then laughing all the way to their yachts!
    We the people count too, we don’t have to make mega millions to be protected by laws, we have to obey the laws, so do the banksters and all their cronies.
    Why should we shoulder the burden of the failed pyramid schemes of Wall street?
    And if we don’t count, don’t have the same considerations and protections, then there is no reason for us to sit back and be peaceful.
    It won’t take but one more insult to the working people for them to say enough, we won’t take any more and the revolution will begin.
    And the rich shouldn’t look for the military to save them, because they’ve been giving the military the shaft for nearly 200 years!

    I’m tired and frustrated that everywhere you look, the lie is being told and no one seems to want to admit that it’s all a lie and do something to stop this headlong rush to disaster.

  8. There’s a palpable tipping point being reached to where the low and middle class are no longer willing to sit back and let the status quo reign. Enough is enough. A class war is brewing. From, Charles Hugh Smith writes:

    “Once the entire system is riddled with gamesmanship, looting, loopholes and exemptions
    for the Elite and secret dispensation of public funds, then belief in the supporting
    intellectual framework and the fairness of the system fades. The middle class outside the
    “caste” of State technocrats is squeezed by Plutocratic and State over-reach; as they drop
    out then the taxes they paid to support the ever-growing State decline, eventually leading
    to the State’s insolvency.

    …empires and States collapse when the costs far outweigh the marginal gains; in effect
    the cost of maintaining the over-reaching State and Plutocracy far exceeds the
    increasingly marginal benefits provided by the State and “belief in
    the system. Marginal benefits are low, marginal costs are high.”

    I believe we’re passing that point right about now. We’ve reached peak income disparity.

  9. Good for you, Gregory, & thank you for fighting for the little people. I second your motion: Long live forced principal reduction and forced loan mods!

  10. Laura ,

    Those statistics are even worse than they look on first glance as they are skewed by the huge numbers of imperial federal government “public servants” that earn on average the equivalent of $63/hour when you look at both stated salary and benefits ($125k/yr) … plus they generally put next to nothing into their retirement plan and will get a pension guaranteed by my sweat and yours. 100% taxation if necessary.

  11. “The median male worker earns less today, adjusted for inflation, than he did 30 years ago”

    For many people, you don’t even have to adjust for inflation. 25 years ago, when I was 20 years old, I earned $9.00 an hour working at a call center. Today I make $8.00 an hour working at a call center – the only job I could find two years ago. Of course, I’m not male…but regardless, wages have not kept up with inflation, much less reality.

  12. recovery has to do with alot more than housing.






  13. Preliminary Injunction granted in a Virginia post-sale case challenging a foreclosure sale and seeking to set aside the sale. The former owners (or actually still the true owners) now cannot be evicted until the entire case is heard on the merits, which is a few months from now.

    This morning the servicer indicated that they are moving in the direction of a settlement issuing a new loan to the homeowners on modified terms that were denied before.

    Long live forced principal reductions and forced loan mods!

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