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Americans have had seven tough years

By Walt Brasch - posted Friday, 18 July 2008


Flushed with an inflated housing boom, banks and mortgage companies had begun issuing mortgages, usually with excessive fees and high interest rates, to just about anyone with a pulse: the weaker the credit rating, the higher the fees and interest. Even if the economy was healthy, there would have been several hundred thousand defaults. By the end of 2007, about 2.5 million mortgages were in default, almost 40 per cent higher than one year earlier. Attached to the problem is that many new homeowners bought houses at inflated prices, assured by lending companies that housing prices would continue to rise, are making monthly payments that put them at financial risk, and are now watching the value of their houses decline.

Foreclosures and the recession have driven down housing prices throughout the country. In 20 major American cities, house prices declined about 15 per cent, according to the Case-Shiller index of housing prices. Prices declined by 25 per cent in Las Vegas, Miami, and Phoenix, according to Case-Shiller. In California, the median price of houses declined by 35 per cent in the last year, according to the California Association of Realtors.

Monday morning (July 14), the day before the President’s speech, hundreds of Americans stood in line at the 33 Southern California branches of IndyMac Bank, now renamed Indymac Federal Bank, to withdraw what they hoped was all of their money. In 11 days, customers withdrew about US$1.3 billion, amid rumours that the bank was failing.

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The previous Friday, federal regulators seized the bank, once one of the nation’s largest mortgage lenders. Last year, the bank lost US$615 million; the books bled red another US$184 million the first three months of this year. The Federal Deposit Insurance Corp. (FDIC) guarantees each individual account to $100,000, joint accounts to $200,000, and retirement accounts to $250,000. Those with less knew they would get all of their money. For those with more, some were just hoping to recover 50 cents on the dollar. The cost to the FDIC is expected to be $4-8 billion. IndyMac was the fifth bank to fail in the previous six months.

Also failing were the Federal National Mortgage Association (better known as Fannie Mae) and the Federal Home Loan Mortgage Corp. (better known as Freddie Mac). The quasi-governmental agencies either own the loans or guarantee loans for almost half of the nation’s US$11 trillion in mortgages. But, with more homeowners buying houses they couldn’t afford and now being subjected to rising costs in almost every area, combined with higher unemployment, both Fannie Mae and Freddie Mac faced collapse, their stock value freefalling about 90 per cent in the past year.

To keep the two agencies from failing, which would undoubtedly throw the nation into a deeper recession that could dive into a depression, the Federal Reserve announced it would issue low-cost loans of up to US$15 billion.

While US$15 billion taxpayer dollars may seem significant, it is only about 9 per cent of the US$168 billion Congress appropriated for the war this year. President Bush, Vice-President Cheney, and their advisors were vigorous in demanding the US go to war in Iraq and vigorous in demanding massive funding for that war, which may now cost more than US$1 trillion.

President Bush did acknowledge that the economy wasn’t “as good as we’d like, and to the extent that we’ll find weaknesses, we’ll move”. As domestic problems piled up the past few years, much caused by a diversion of the budget and assets to Iraq, it seemed that the Bush-Cheney Administration moved on domestic policies at the speed of a glacier.

Not receiving much help are the 47 million Americans who don’t have medical insurance, mostly because they can’t afford the premiums, and the 3.5 million homeless, most of whom once had homes and jobs but are now living in their cars or makeshift shelters. About one-fourth of the homeless are veterans; slightly more than one-third of the homeless are children.

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In 1992, Bill Clinton and Al Gore campaigned against President George H.W. Bush on the slogan, “It’s the economy, stupid”. The politics of that election came down to asking Americans if they were better off under that President Bush after four years than they were when his presidency began. Four presidential terms later, after eight years of a rising economy under President Clinton, it’s the economy - not the war, the attack upon civil liberties, the destruction of the environment, or any of a few dozen other destructive policies - that may be what finally scuttles this Bush’s legacy.

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About the Author

Walter Brasch is professor of journalism at Bloomsburg University. He is an award-winning syndicated columnist, and author of 16 books. Dr. Brasch's current books are Unacceptable: The Federal Government’s Response to Hurricane Katrina; Sex and the Single Beer Can: Probing the Media and American Culture; and Sinking the Ship of State: The Presidency of George W. Bush (Nov. 2007) You may contact him at brasch@bloomu.edu.

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