There have been lots of books written about the collapse of the housing market in 2008. I have read several of them, but this would be the first of them that discusses the catastrophe in the context of what government could or should have done differently. What did happen was that the feds bailed out the banks rather than bailing out the homeowners. Now you could argue that those who capitalized on the willingness of the banks to refinance anything and everything driving up the value of houses so they could be refinanced and treated like ATMs properly bore the brunt of the devastation. Glantz makes a case for a different agenda.
During the foreclosure epidemic of the depression, FDR created the Home Owners Loan Corporation, which bought millions of distressed mortgages and modified them. If that didn't work and foreclosure became necessary, it sold the foreclosed homes to individuals, taking care of them while they were on the market, and so the program almost paid for itself. That, coupled with the creation of the FHA and FHA, ushered in an unprecedented era of prosperity and homeownership. Government stepped in rather than stepping aside. Glantz suggests Reagan stepped aside, during the savings-and-loan crisis in 1986 when those institutions liberated by the elimination of most regulations ran amok and using their client's money made risky bets. The administration then permitted the vultures to swoop in and pick up the assets at fire-sale prices, losing billions in the process but enriching the vultures. The Obama and Bush administrations did the same in 2008 spending almost a trillion on Wall Street bailouts. Investors were attracted to the collapsed housing market by auctioning off delinquent mortgages at low prices and with loss-share agreements that essentially guaranteed that the investors wouldn’t lose money. These policies not only provided firms with financial incentives to pursue foreclosures but also enabled an enormous and permanent transfer of wealth from homeowners to private equity firms.
Glantz has several examples of people who were conned into making risky investments like reverse mortgages without understanding the consequences for their heirs or estate. Fees and high interest rates doomed those saddled with trying to unravel themselves from the mountain of debt they had accumulated. Glantz shows, it happened over and over in similar ways across the country, systematically turning middle-class homeownership into corporate profits, facilitated at every stage by the federal government. And people wonder why Trump became so popular.
The math is frankly staggering as venture capitalists and billionaires moved in to collect the spoils, enriching themselves even further as the expense of us, the taxpayers. Whether all this could occur is because of the cozy relationship the Democrats and Republicans had with the rich eastern establishment tycoons, the Larry Summers, Mnuchins (and where did he wind up?) et al. seems self-evident to me.
The California attorney general’s office delivered a robust report against bank practices, "detailing widespread misconduct, which included backdating false documents, performing foreclosure actions without legal authority, and violating proper foreclosure notification practices. But the attorney general at the time, Kamala Harris, did nothing."
The whole process, supported by the government, became fodder for the rich. Prices of millions of starter homes had fallen to half their 2006 peak. Private equity firms snapped them up. The biggest buyer was Blackstone, the nation’s largest private equity firm, which funded a subsidiary called Invitation Homes whose representatives traveled with cases full of cashier’s checks to auctions around the country, spending as much as $100 million per week. After a merger with Waypoint, they now own more than 80,000 houses. No longer were these homes a way for the middle class to accrue savings—now they were lucrative investments for the very rich.
"The Obama administration facilitated the transfer of wealth from homeowners to private equity firms in two ways. A house that goes to foreclosure auction but doesn’t sell is repossessed by the bank that holds its mortgage, becoming what is bewilderingly referred to as a real estate owned home, or REO. By August 2011, the federal government owned 248,000 repossessed and unsold properties, nearly a third of the nation’s REOs. In 2012 the HUD launched the Real Estate Owned-to-Rental pilot program, encouraging investors to buy bundles of the government-owned REOs if they agreed to maintain them as rental units. The pilot put 2,500 homes in Chicago, Riverside, Los Angeles, Atlanta, Las Vegas, Phoenix, and various cities in Florida up for auction in batches. Meg Burns, senior associate director of housing and regulatory policy for the Federal Housing and Finance Authority, said the program was intended to “gauge investor appetite” for single-family housing and to “stimulate” the housing market by “attracting large, well-capitalized investors.” Treasury Secretary Timothy Geithner, meanwhile, argued that creating new options for selling foreclosed properties would “expand access to affordable rental housing”; this turned out to be gravely mistaken."
Another way in which the Obama administration facilitated the rise of the single-family rental industry is when the government took on $5 trillion worth of bad FHA-insured mortgages when it assumed ownership of Fannie Mae and Freddie Mac in 2008, then auctioned that debt off through the Distressed Asset Stabilization Program (DASP) with almost no safeguards.
The big different between FDR's actions and those of Reagan thru Obama, is FDR used the power of government to help people. The others used the power to, perhaps unwittingly because that's where the advice was coming from, the rich bankers who had the most to gain from governmental support. Glantz quotes Woodrow Wilson in 1911: “The great monopoly in this country is the money monopoly. So long as that exists, our old variety and freedom and individual energy of development are out of the question. A great industrial nation is controlled by its system of credit.” It's not hard to look at Wilson's time and the wealth inequities and then at the rise of Father Coughlin (Tucker Carlson) and Huey Long (the only politician who worried FDR.) Huey Long was competent; the only thing that saved us from Trump's authoritarian desires was his incompetence. Of course, the jury's still out.
As Thomas Barrack, one of those enriched through governmental policies put it, “Anytime the government is intervening in our business, if you buy, you will be successful.” Overdue and panicked government intervention is the vulture investor’s best friend.
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