The Money Pit, or Not: Framing the Mortgage Bailout Debate
Demolishing Rundown Housing on Main St., North Adams
Critics of the Obama administration’s bailout plan have complained that taxpayers shouldn’t have to bailout homeowners who made poor financial decisions. Supporters say that multitudes of homeowners who’ve lost their jobs due to the poor economy should gain financial help simply because it’s better for them to be homeowners than homeless, or say that bailouts should be available because the lenders were deceptive. Both arguments have their merits. But which one is less false or more correct? Are there any other ways to think about these problems? And, how does this relate to the arts and artists or arts-centered communities?
As an artist and homeowner and landlord, I have a few thoughts about this quandary from both a personal and a business perspective. Occasionally I’ve also taught arts business courses to college students – basic business planning, income/expense equations, etc. Although I’m not a specialist financial expert, I do have good general expertise with these kinds of financial issues.
Neither for/against argument is supported wholly by mortgage default trends and national statistics. You can find detailed reports here. It is true that some individuals made bad financial decisions, choosing mortgages that were far beyond their means and whose bad decisions were approved by crooked banks who didn’t adequately measure the risks. It’s also true that we are in the midst of massive increases in foreclosures, more than a quarter million per month for many months now. Decisions about mortgage and banking policies cut across all sectors of the American population, from the very poor to the exceptionally wealthy.
Some of the variables: type of down payment, type of mortgage (ARM, fixed, etc.), cash available for inevitable home repairs and maintenance, balancing benefits of renting against risks of ownership. Commercial rental property is a bit trickier than owning a single-family home, so that the business doesn’t create losses. Fixer-uppers may be most affordable, but may also be money pits and time sinks. It’s also important to take a clear look at the market where you’re buying a home: are home values increasing, stable, decreasing, unstable? As a result of these variables, good decisions about home ownership as well as rental property ownership take considerable research, and careful calculating. And with this many variables, it should be no surprise that mortgage bailout plans will necessarily be highly complicated.
I think it’s fair to conclude that no federal plan will meet all needs, and that no simplistic view works well (eg positions like ‘no bailout!’ or ‘Only bailout responsible homeowners’ or ‘bailout everyone’). Thus a widely distributed or diversified strategy will likely work best. Here’s the best description of Obama’s plan yet, from Howard Glaser, a HUD official in the Clinton administration:
“For the last two years, the government has been employing a squirt gun to put out the forest fire in the housing market,” Glaser says. “The Obama plan is a howitzer aimed at the problem, by contrast.”
Including the above quote, a report of Glaser’s and other experts comments is on NPR. Other reports headline ‘Is The Obama Mortgage Plan Big Enough?’ versus Go With Bankruptcy Over Nationalization. In fact Obama’s plan does take into account problems with mortgage fraud, according to the Wall Street Journal the plan includes increased funding for federal agencies to investigate and act on fraud. A much more personal approach appears in Time’s article, House of Cards: The Faces Behind Foreclosures. It’s easy to have some sympathy for the people in Time’s article, less for the idiots linked in Hey, Lady, Your $800,000 House Is Not My Problem. (Sometimes journalism and blogging = manufacture-your-emotion-machines!) And at least from the arts perspective, we can always rely on the fact that in bad economic times the starving artist is unperturbed, simply because he or she already knows how to starve. It may often be the same with other arts workers, for examples see this article about Christie’s auction house employees, In a World of High Glamour, Low-Pay Jobs, the Recession Has Its Bright Spots. Earning only $19k-$50k in a major city, arts workers certainly are not going to be able to afford home ownership on their wages alone, that’s for sure.
As for arts-centered communities within the ‘creative economy,’ today’s economic problems are a forceful reminder that tangible goods (homes, land, other property, manufacturing, agriculture, etc.) are a massive portion of the economy and that knowledge-based and service and entertainment sectors like the arts never wholly supplant tangible goods.
One requires the other, where the arts often making living in a community more attractive which in turn does sometimes attract other types of businesses. Here in the Berkshires, despite an amazing, world-class array of arts institutions and artists, we are not seeing the arts attract new industries that create tangible goods. At the very least, nationwide most industries are not currently in the position to relocate anywhere – but such realities do put a limit on what the arts-portion of the Creative Economy is able to incentivize and attract.
Another element of the Creative Economy is investment in science innovation (‘Creative’ doesn’t only mean the arts!) – in that regards our local state college (where I teach) is scheduled to create a new science building, which will dramatically increase our ability to provide the training, research, and innovation that makes the sciences possible. Will national economics and inevitable statewide budget cuts cancel or delay this kind of tangible? Could happen. But I hope not. The sciences are a far larger and fundamentally more important sector of the economy than the fine arts, and the Berkshires would do well to build on its arts sector to become the home to scientific research and development centers. With the federal push to strengthen green, sustainable energy production, the Berkshires could strive to gain jobs and industries by being a great place to create energy-related innovations.
The main point with bringing this idea into this discussion? In tough economic times the arts cannot act as a cushion for industry or jobs. There is no clearer indication that the Berkshires need to radically diversify its approach to job creation and non-arts industries than that far too many big Berkshires mansions are for sale and have been for many months – after all, it’s not the artists who buy the big houses, most artists can’t afford them even in good economic times!
The question of what (if anything) the federal government should do reminds me of a swarm of army ants, carrying food home. If you’ve ever watched them, you know that even when they grab the same piece of food, they certainly do not all pull in the same directions. They go where the most ants pull, dragging and prompting the others along. Their forces combine and work well most of the time, but although the situation results in a single general direction back to the anthill, getting there and pulling in all directions is a lot more complex and doesn’t involve full cooperation from all ants.
Thus the fundamental question about any of the federal economic policies is this: which policies stand the greatest chance to help the most people most of the time?
