Economic Rescue From the Bottom Up

north america / mexico | economy | opinion/analysis Friday January 09, 2009 20:48 by GregA - Common Action nwcommonaction at gmail dot com

The working class is too big to fail

Across the country, home foreclosures and job layoffs are on the rise. While we worry about our paychecks and homes, the government is giving money to banks that are “too big to fail” and asking them kindly to prevent a collapse of the economy by lending it out. We have little direct control over Wall Street, but anything we can do to prevent foreclosures and evictions from Main Street to Martin Luther King Way will directly impact the local economy.

Across the country, home foreclosures and job layoffs are on the rise. While we worry about our paychecks and homes, the government is giving money to banks that are “too big to fail” and asking them kindly to prevent a collapse of the economy by lending it out. We have little direct control over Wall Street, but anything we can do to prevent foreclosures and evictions from Main Street to Martin Luther King Way will directly impact the local economy.

So how did we get here?In the 1990s, the Republican-controlled Congress deregulated the banking industry. For years, banks made a fortune by making risky loans, bundling them, and selling them to other banks while lying about the risk. Many borrowers were lied to about the terms of their loan and their ability to pay. As long as house prices rose, the banks were happy to profit off the mortgages, mortgage-backed securities, and other unregulated speculative side bets.

But when interest rates started rising and home prices started falling, many homeowners couldn't afford their higher mortgages but also couldn't sell their homes. To make matters worse, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was rushed through Congress in 2005,making it harder to prevent foreclosure. When banks started foreclosing on homes, they realized that the mortgage-backed securities they bought were worth much less than they thought. As the banks saw the value of their assets drop, they all tried to sell at the same time, which caused the value of their assets to plummet. Next thing you know, banks started failing, and the government began planning a bailout.

Many working people who depend on a paycheck to survive are rightfully skeptical about the bailout. Why should we care if banks fail, and why should renters care about the plight of homeowners?

The answer is that our economic problems are all connected. The mismanagement of the financial industry has led to a credit crunch in which many businesses are unable to get short-term loans, which they need in order to consistently make payroll. Without the loans, companies must scramble to get cash, or lay off their employees. A further worry is that working people, unsure of their income and without access to consumer credit, will spend less, causing businesses to lay off workers to cut back supply.

Meanwhile, home foreclosures turn former owners into renters. While homes sit empty, apartment building occupancy goes up, driving rent up. If you own your home, it loses its value. If you rent, your rent goes up, and you can't even get a loan to buy a foreclosed home.

It all adds up to a downward economic spiral. The bailout proposals are an attempt stop the cycle by helping out those at the top. The trouble is that bank CEOs know that it's in their self-interest to hold on to the bailout money and try to ride out the economic crisis. The CEO of Merrill Lynch recently said of the bailout cash, "At least for the next quarter, it's just going to be a cushion."

Democrats and Republicans alike would have us believe that the crisis and any solution to it is beyond our control. But the true threat of the crisis is its impact on the broadly defined working class – those of us who depend on a paycheck to keep our homes and feedour families. It is our participation in the economy that keeps it all going. If we stick together, we can build a grassroots bailout from the bottom up—because the working class is too big to fail.

Across the country, working people are fighting back with eviction and foreclosure resistance. As Howard Zinn explains in A People’s History of the United States, this tactic helped save homes during the Great Depression. This resistance prompted government-imposed foreclosure moratoriums and led to the introduction of federal New Deal programs in1933.

Throughout the past year, the Bank Tenants Association, organized in Boston by City Life / Vida Urbana ( http://www.clvu.org ),has resisted foreclosures. By taking direct action and blockading foreclosed homes, they have succeeded in forcing banks to renegotiate terms. In other cases, homeowners were allowed to pay rent after aforeclosure rather than be evicted only to have the house sit empty.

In Detroit, Moratorium NOW! ( http://www.moratorium-mi.org/ ) has succeeded in preventing a foreclosure and prevented evictions of tenants in foreclosed rental properties.

And here in the Pacific Northwest, the Seattle Solidarity Network ( http://www.seattlesolidarity.net )has had successes in related struggles. In June, they successfully helped tenants win their legally entitled relocation assistance from their landlord when the Green Lake Motel was shut down.

As news of these wins spread, more communities are standing together to fightback for a real economic rescue—from the bottom up.