http://select.nytimes.com/2007/04/05/opinion/05herbert.html?th&emc=th
Our Crumbling Foundation By BOB HERBERT NY Times: April 5, 2007 Fifty-nine years ago this week - on April 3, 1948 - President Truman signed the legislation establishing the Marshall Plan, which contributed so much to the rebuilding of postwar Europe. Now, more than half a century later, the U.S. can't even rebuild New Orleans. It doesn't seem able to build much of anything, really. According to the American Society of Civil Engineers, the U.S. infrastructure is in sad shape, and it would take more than a trillion and a half dollars over a five-year period to bring it back to a reasonably adequate condition. If there's a less sexy story floating around, I can't find it. It certainly can't compete with the Sanjaya Malakar saga, or with the claim by Keith Richards that he snorted his dad's ashes with "a little bit of blow." But, as we learned with New Orleans, there are consequences to neglecting the infrastructure. Just a little over a year ago, a dam in Hawaii gave way, unleashing a wave 70 feet high and 200 yards wide. It swept away virtually everything in its path, including cars, houses and trees. Seven people drowned. On the day after Christmas in Portland, Ore., a sinkhole opened up like something from a science fiction movie and swallowed a 25-ton sewer- repair truck. Authorities blamed the sinkhole on the collapse of aging underground pipes. Blackouts, school buildings in advanced states of disrepair, decrepit highway and railroad bridges - the American infrastructure is growing increasingly old and obsolete. In addition to being an invitation to tragedy, this is a problem that is putting Americans at a disadvantage in the ever more competitive global economy. Felix Rohatyn, the investment banker who helped save New York City from bankruptcy in the 1970s, has been prominent among those trying to sound the infrastructure alarm. Along with former Senator Warren Rudman, he has been criticizing the government's unwillingness to invest adequately in public transportation systems, water projects, dams, schools, the electrical grid, and so on. He recently told a House committee that Congress should begin a major effort to rebuild the American infrastructure "before it is too late." "Since the beginning of the republic," he said, "transportation, infrastructure and education have played a central role in advancing the American economy, whether it was the canals in upstate New York, or the railroads that linked our heartland to our industrial centers; whether it was the opening of education to average Americans by land grant colleges and the G.I. bill, making education basic to American life; or whether it was the interstate highway system that ultimately connected all regions of the nation. "This did not happen by chance, but was the result of major investments financed by the federal and state governments over the last century and a half. ... We need to make similar investments now." Politics and ideology are the main reasons that government has turned away from public investment over the past several years. Zealots marching under the banner of small government have been remarkably effective in thwarting efforts to raise taxes or borrow substantial sums for the kind of public investment that has always been essential to a dynamic economy. That this is counterproductive in a post-20th-century world should be as obvious as the sun rising in the morning. There is a reason why countries like China and India are racing like mad to develop their infrastructure and educational capacity. "A modern economy needs a modern platform, and that's the infrastructure," Mr. Rohatyn said in an interview. "It has been shown that the productivity of an economy is related to the quality of its infrastructure. For example, if you don't have enough schools to teach your kids, or your kids are taught in schools that have holes in the ceilings, that are dilapidated, they're not going to be as educated and as competitive in a world economy as they need to be." Mr. Rohatyn and Mr. Rudman are co-chairmen of the Commission on Public Infrastructure at the Center for Strategic and International Studies. They believe that failing to move quickly to address the nation's infrastructure needs - through the establishment of a national trust fund, for example, or a federal capital budget - could lead to long-term disaster. But words like trust fund and long-term and infrastructure find it very difficult to elbow their way into the nation's consciousness. We may have to wait for another New Orleans before beginning to take this seriously. *** http://www.alternet.org/stories/50120/ Attack of the Mortgage Vultures By Matthew Rothschild, The Progressive. Posted April 5, 2007. Over the last decade, we have been witnessing some of the most brazen acts of mortgage entrapment ever to hit the American housing market. George Bush likes to boast about the high rates of homeownership. But today in America, millions of homeowners are at risk of seeing their prized possession taken right out from under them. Over the last decade, we have been witnessing some of the most brazen acts of mortgage entrapment ever to hit the American housing market. Subprime lenders have coaxed eager consumers to buy or refinance their homes often with no money down, and at seemingly low interest rates. But now millions of homeowners are paying way more than they can afford. Their dream of homeownership has quickly turned into a nightmare of foreclosure. And this nightmare is beginning to rattle the economy as a whole. All the while, the government has stood idly by. Buying or refinancing a home is not what it used to be. Traditionally, you'd get your mortgage through a savings and loan. The banker there would inspect your income and credit history to see if you could pay back the loan, and you needed to come up with 20 percent of the loan as a down payment. The loan would have a fixed interest rate over fifteen or thirty years. The homeowner would have to set aside money for property taxes and homeowners' insurance. And the mortgage would stay in the originating bank. Things are different now, thanks to the so-called subprime mortgage market, which accounts for almost one out of every four home loans currently being written. Today, mortgage brokers barrage consumers with offers of no-money-down loans, and last year, "more than 37 percent of subprime loans were made without verification of borrowers' incomes," The New York Times notes. Nor do such lenders typically require borrowers to escrow money for property taxes and homeowners' insurance. The terms of the loans are also much different. Adjustable rate mortgages have proliferated, with consumers getting seduced by offers of low interest rates the first two years of the loan only to be slapped with steeply escalating rates in subsequent years. And the original lending institution now often sells the mortgage on the financial markets rather than hold onto it. When times get tough, faraway investors are even less open to renegotiating terms than local savings and loans were. The boom in this industry has been extraordinary. "From 1994 to 2005, the subprime loan market grew from $35 billion to $665 billion," the Center for Responsible Lending notes in a report entitled "Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners." But so has the bust. "We estimate that one-third of families who received a subprime loan in 2005 and 2006 will ultimately lose their homes," the report predicts. While opening up the possibility of homeownership to people with lesser means or spottier credit is something that progressives have advocated for a long time, the way the private sector has done this has been criminal. "Because the subprime market is designed to serve borrowers who have credit problems, one might expect the industry to offer subprime loan products that do not magnify the risk of loan failure," the report says. "In fact, the opposite is true." First of all, adjustable rate mortgages are inherently duplicitous. They play upon the attractiveness of low interest rates up front, and they exploit ignorance of higher rates later on. Second, many who get subprime loans could easily have received safer, less expensive mortgages in the prime market but were steered into the subprime loan by a mortgage broker. Third, these brokers sometimes get a cash bonus from the lender for getting the consumer to agree to a higher interest rate than the lender was expecting. And the broker's incentive is not to ascertain creditworthiness but to clinch the deal. The broker bears no financial cost if the consumer ends up foreclosing. Fourth, subprime mortgages often limit repayment of the loan's principal, so that for many years the homeowner is just paying back interest and not accumulating equity. Fifth, some subprime mortgages actually penalize the homeowner for paying off the loan ahead of time. This is especially pernicious, since if the consumer can't make the payments and has to sell the home prematurely, the lender imposes a huge extra fee at closing, draining whatever equity the homeowner may have acquired. African Americans and Latinos take subprime loans at astonishing rates. More than 50 percent of the home loans to African Americans are subprime. For Latinos, it's 40 percent, the report says. "If current trends continue, it is quite possible that subprime mortgages could cause the largest loss of African American wealth in American history," testified Martin Eakes, CEO of the Center for Responsible Lending on February 7 to the Senate banking committee. Some mortgage executives are absolutely unapologetic. "People are adults and made choices in their lives because they wanted to own a home of their own," Countrywide Financial CEO Angelo Mozilo told Bloomberg news service on March 22. "America's great because people can make those decisions for themselves." Countrywide Financial is the nation's biggest mortgage lender. Given the reprehensible tactics in the industry, and given the softness in the housing market, foreclosures are going through the roof. They were 43 percent higher in the third quarter of 2006 than the third quarter of 2005. "Foreclosure rates will increase significantly in many markets as housing appreciation slows or reverses," the Center for Responsible Lending says. "As a result, we project that 2.2 million borrowers will lose their homes and up to $164 billion of wealth in the process." Such a loss constitutes a threat to the overall economy. Several leftwing economists, most notably Dean Baker, have been warning for years about the danger of the housing bubble bursting. Now that it has begun to pop, even the Federal Reserve has taken note, though it has tried to put a happy face on the situation. In testimony before Congress on March 28, Fed Chairman Ben Bernanke said, "The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained." But he added that the Fed needs "flexibility" in case the problem spreads. Ironically, the Fed all along could have done something about the predatory practices in the subprime market. In 1994, Congress passed the Home Ownership and Equity Protection Act. It gives the Fed the authority to "prohibit acts or practices in connection with-(A) mortgage loans that the Board finds to be unfair, deceptive, or designed to evade the provisions of this section; and (B) refinancing of mortgage loans that the Board finds to be associated with abusive lending practices, or that are otherwise not in the interest of the borrower." But the beatified former Fed chief Alan Greenspan was not all that concerned about the interest of the borrower. His interest lay with the financiers, so he hailed subprime lending as the "democratization of credit." In fact, as Senator Christopher Dodd noted at a recent hearing, the Fed actually "seemed to encourage the development and use" of adjustable rate mortgages "that today are defaulting and going into foreclosure at record rates." Congress may finally be rising to its responsibilities. Representative Barney Frank and Senator Chuck Schumer both say they expect to introduce legislation that would crack down on the unscrupulous lending in the subprime market before the year is out. But what's the wait? We can't allow these vulture-like lenders to keep circling over the heads of vulnerable consumers. It is the proper role of government to defend the consumer against just such predatory behavior and to make the dream of homeownership something people can afford and enjoy, not something they get haunted by. Matthew Rothschild is the editor of The Progressive. --------------------------------------------------------------------------- LAAMN: Los Angeles Alternative Media Network --------------------------------------------------------------------------- Unsubscribe: <mailto:[EMAIL PROTECTED]> --------------------------------------------------------------------------- Subscribe: <mailto:[EMAIL PROTECTED]> --------------------------------------------------------------------------- Digest: <mailto:[EMAIL PROTECTED]> --------------------------------------------------------------------------- Help: <mailto:[EMAIL PROTECTED]> --------------------------------------------------------------------------- Post: <mailto:[EMAIL PROTECTED]> --------------------------------------------------------------------------- Archive1: <http://www.egroups.com/messages/laamn> --------------------------------------------------------------------------- Archive2: <http://www.mail-archive.com/[EMAIL PROTECTED]> --------------------------------------------------------------------------- Yahoo! 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