One year Moratorium on Mortgages

Ilargi Feb 2, 2009

[As Dmitry Orlov points out in Dmitry Orlov: How Russians survived the collapse of the Soviet UnionIn the Soviet Union, nobody owned their place of residence. What this meant is that the economy could collapse without causing homelessness: just about everyone went on living in the same place as before. There were no evictions or foreclosures. Everyone stayed put, and this prevented society from disintegrating. One more difference: the place where they stayed put was generally accessible by public transportation, which continued to run during the worst of times. Most of the Soviet-era developments were centrally planned, and central planners do not like sprawl: it is too difficult and expensive to service. Few people owned cars, and even fewer depended on cars for getting around.”]

Here’s an idea I’ve been toying with lately: A 1 year moratorium on mortgages, in the US, EU and UK. That’s right, no new mortgages would be written for the next 12 months. I am fully aware of the weight of the voice of established banks, and what that means for the chances of an idea like this. But please bear with me.

My idea would mean the end for the best part of an entire industry, I know. But then, that industry is only alive because of government support. Fannie and Freddie should be dead entities, but nothing is ever truly dead that feeds on the public vein. What you can do with the $10.6 trillion in Fannie&Freddie mortgage holdings in this: any foreclosure-worthy loan is donated by the federal government to the municipality the home is in. In other words, the community now owns the home, and can decide to leave the occupants in the home. Or not. yes, this will devalue all homes in the community. But that will happen anyway. the advantage is that people can be kept in their homes.

If you have a 1 year mortgage moratorium, you’ll effectively steer yourselves towards a situation in which people cannot buy homes, they can only rent them. But increasingly, they will then rent from the community they are part of. And that harks back to the principle that communities need to keep control of their citizens’ basic needs as much as possible. We are talking, in that sense, about the best or all worlds. Why should homes by private property that only enriches bankers and carries the risk the owners treat their properties in ways that hurt the community. I know that Americans will cry “Socialism” now, but that’s fine by me. Americans have no idea what socialism means anyway.

There are huge advantages for everyone in a system where basic needs are property of the community, not individuals. The biggest advantages, ironically, are for the individual. In our present system, paying off a $100k mortgage in full costs you $300-400k. And that is money that leaves your community, since the main lenders are not local. If you can pay much less per month, and the money you do pay stays inside your community, you have a situation in which everyone wins except for the fat cat bankers.

Anyway, I should let go of the stream of consciousness for now and start posting this. I’ll get back to it one of these days. The British notion of establishing a national bank that belongs to the people, if combined with a way to keep people in their homes that does not hurt their own neighbors, looks to me to be the only way forward. Unfortunately, what I see in the US, and across the board, is only concerned with raising the dead (banks). That will not work. My ideas are far more promising than Obama’s so far. So there you are and here you go.

Feb 19, 2009

The president’s $275 billion plans to halt foreclosures are even more twisted. If you can afford your mortgage, or if you rent, you are now a sucker all of a sudden. The real suckers who are presently underwater or close to eviction are elevated to worthy of saving status. There is, however, not a word about what happens to the worthy former suckers when home values keep going down. And they will. What are we going to do, renegotiate every year?

The fact of the matter, of course, is that the $275 billion will not, and are not meant to, benefit the homeowners. They are provided for the benefit of the lenders, the banks. They are meant to guarantee an ongoing flow of funds towards the vaults replete with toxic debts based on the very homes the government now showers with cash. They are meant to artificially continue to prop up US real estate values, which, if they were allowed to simply follow the course of the markets, would bankrupt not only the owners, for which Washington cares preciously little, but also the banks, for which Washington will bend over backwards any time of day. The main problem is that it’s way too late. The banks will drown, and everybody knows it. So the only real purpose served by these measures is to transfer ever more of the public’s funds to the banking sector. It’ll go on until the nation itself is completely broke and broken.

What would be in the real interest of the people is to let the banks fail, and use these funds to set up a new banking system. There are various ways to do this. Nationalizing the banks is not one of them, because it would transfer the toxic debts to the people. Who are already poor and getting much poorer even without those “assets”. It can’t be done. There is no way. Tim Geithner couldn’t do it after 19 months of thinking, and nobody else can. The banks must be made to fail. But they won’t be, because the main shareholders, who are among the richest people on the planet, would never allow it. At least not now. They prefer opening the public spigot more and more, until it breaks. Since they own Washington, that is what will happen.

Another hypothetical -since it won’t be accepted- issue that would be in the public’s interest is that Fannie and Freddie should be liquidated. Not made even bigger, as Obama is set to do. Fannie and Freddie are both perverted and perverting institutions. They keep home prices artificially high, which is good for banks, and banks only. All homes in foreclosure process that the two GSE’s hold should be handed over to the communities they are located in. Nationalize those properties, not the banks. Under very strict regulations, which are necessary to prevent them from turning into objects of political power ploys, the homes, in which the former owners can stay, would be properly assessed and the rent the occupants will be forced to pay, if they choose to stay, can flow into the communities they live in. This is the proper and probably only way, not only to keep people in their homes, but also to prevent thousands upon thousands of US communities from going bankrupt.

But it will not come to pass. It would take money away from the owners of the chilled corpses called banks that guide the politics of the nation.

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