For whose benefit is this country run? The events of the past 10 years should have erased any doubts about the answer to that question. Let’s recap for a minute just what happened.
First, federal regulators sat idly by while banks and investment funds, with help from their friends the bond rating agencies, put billions into high-risk mortgages that should never have been made, and mortgage brokers raked in closing fees. Millions of families became heavily in debt, and housing prices shot up at unsustainable rates. When all this collapsed, it drove the economy into the deepest recession since the 1930s. Millions lost their jobs and their homes, as banks chose to foreclose rather than work out a way for homeowners to remain in their homes.
There was a little seeming good news: Interest rates were at an all-time low. People could refinance at incredibly low rates. But wait: The banks reacted to the criticisms of their previous loose lending practices by drastically tightening credit rules. Ordinary people who were making house payments with mortgages at 5 or 6 or 7 percent were denied refinancing because their credit was bad — because of the recession and loss of jobs. So the banks were saying, in effect: Yes, we see that you are making your payments at 6 percent but we don’t think you could make the lower payments at 3.5 percent. Banks kept their very profitable mortgages, earning twice what they could get on new mortgages, and prolonging the recession as consumers were unable to free up money for other purchases.
So finally, after five years of economic hardship for much of the population, housing prices have hit bottom and started back up again. Great news. People who have a job again may also be able to buy a house again, and at still very favorable prices and interest rates. But wait: We can’t have the formerly unemployed, forced out of their homes, becoming homeowners again and getting all the benefit from future rising prices and cheap credit. No, that’s clearly a job for the rich.
Families who struggled and suffered during the recession saw their credit ratings sink, and with the tight credit rules, they are shut out of the mortgage market (and in some cases the job market as well). And who steps in? Wall Street firms and wealthy house-flippers. One firm alone, the Blackstone Group, has purchased 26,000 homes in nine states.[i] In a few years they can re-sell to ordinary working folks at higher prices (with mortgages at higher interest rates). The rich, it turns out, are the ones in a position to buy at the bottom and reap the capital gains that will follow (taxed, of course, at a much lower rate than wages).
It should hardly come as a surprise that the net effect of the housing bubble, the financial collapse and prolonged recession, and the beginnings of recovery, was to bring about a substantial redistribution of wealth. For much of the population, what little wealth they had was concentrated in home equity, which was wiped out by the collapse of the housing market; wealth continued to decline for the bottom 93 percent of the population during the first two years of “recovery.”[ii] But for the richest 7 percent, wealth increased 28 percent, from 2009 to 2011.
Income inequality is rising again as well, as profits have surged since the recovery began while wages have stagnated. The top 1 percent got 121 percent of all the gains in income from 2009 to 2011.[iii] If you are in the 1 percent, things have worked out just swimmingly; causing an economic collapse can be very profitable if you are in the right position.
If you are part of the 1 percent, you are also free to spend as much of that new wealth as you want re-electing public officials who will blame Food Stamp recipients, unions, and public school teachers for our economic troubles, while slashing any program that benefits the poorer half of the population in the name of cutting the national debt. Those elected officials can also be counted on to weaken those pesky new financial regulations, modest to start with, and making sure your tax rate doesn’t go back up to anywhere near what it was in the 1990s. Of course, curbing spending while unemployment is still above 7 percent prolongs the jobs recession and the hardships of working families, but who cares? Keep those wages down, profits up, and stock prices hitting historic highs. Meanwhile, having helped destroy several millions jobs during the recession, and having found numerous ways to restore production levels since then without hiring back your former employees, you will now find that you can claim an exemption from tax increases and qualify for all kinds of state and local incentives on the grounds that you are a “job creator.”
Is this a great country or what?
Posted by Peter Fisher, Research Director