Counterpunch: The toxic mortgage waste crisis: An open letter to Barney Frank

What’s not to like about Barney Frank, the tough talking Congressman from Massachusetts, chairman of the House Financial Services Committee?

He is one of the smartest guys in the Democratic camp, a thick skin and a slight lisp that says, “Go ahead, test me. Make my day.”

But Barney, you need advice.

In good times, a tame federal regulatory atmosphere satisfies Wall Street and its massive campaign contribution capacity. A slap here, a slap there. For instance, committee hearings on biased lending practices. That’s bread and butter stuff. The white shirts filter in and out of the hearing room and pay their fine.

Fine. But Barney, the gathering momentum toward a credit meltdown in financial markets is swamping debate how to correct the vast inequities that have piled up across the nation as the late, great housing boom stifled common sense about the unabsorbed costs of growth. Actually, that debate has never happened in Congress.

That debate needs to happen now.

Jon Helsenrath in the Wall Street Journal (“Subprime mess is a new challenge for regulators”, July 23) wrote: “A system designed to distribute risk also tends to breed it.” Correct.

The risks to our communities from the bubble in housing markets led to a particularly American form of madness: the assertion by economists and national leaders that inflation was low at the very same time quality of life in urban areas was swamped by unabsorbed costs: inadequate infrastructure piling hundreds of billions of dollars on unwitting taxpayers, bad roadways, degraded wetlands, poor schools, to name a few.

Breeding risk is what America’s fastest growing regions did throughout a housing boom whose promoters bucked reason, citizen outrage and complaints, multiplying debt like confetti and putting taxpayers under the yoke of foolishness.

We want to get out from under the yoke, Barney. Can you help us?

The cause of our national trouble is the market, largely unregulated, for financial derivatives related to housing mortgages. It is a beast with many faces: 10,000 unoccupied condos in downtown Miami, and, tattered, platted subdivisions in South Florida wetlands.

The housing boom, now in cinders, deformed the purposes of government to serve political ends. It favored the massive swelling of unallocated costs of growth. The tail is wagging the dog.

The House Financial Services Committee does not have to confront the builders’ lobby or their leashed companions: local elected officials who lean on every weak-kneed argument to support unsustainable growth.

The Committee has to confront Wall Street.

Now that the House Financial Services Committee is scrambling for things to do, focus on the causes of the multi-trillion dollar explosion of financial derivatives, largely without regulation, except for the mutual hand-washing of rating agencies, debt issuers and hedge funds, that swept aside concern for the environment, for wetlands, for the fabric of communities, and substituted a raft of entitlements, protections, supported by engineers and lobbyists and political enablers: the worst being those at the bottom of the legislative rung—local city and county commissioners whose hands are continually poised in the outward position and turned up.

it is tempting to make Fannie Mae and Freddie Mac stunt-doubles for Wall Street: let them take a beating today for their past fiscal transgressions by assuming the subordinate position as investment vehicles to absorb toxic mortgage waste created during the housing boom of the past decade. That is what is happening, now.

Business Week reports: “Why Fannie and Freddie are Fidgety, the financial giants are loaded down with dicey loans and defaults increase.”

“Fannie Mae and Freddie Mac have been cast as saviors in the housing drama that’s roiling the financial markets… After they stepped in to snap up billions of dollars in subprime loans earlier this year, some politicos declared the duo a point of strength.”

Please, Barney, think about it: even if government sponsored entities could pull the nation’s real estate markets from where we are headed, in the end the American taxpayer will have to swallow the toxic waste of financial derivatives buried in failed financial institutions.

Excesses of the building boom are still going on in places like Miami where local legislators are so accustomed to doing the bidding of the development lobby, they don’t know any other way to behave: approving new development right into the teeth of market failure.

Call Wall Street to account, now. Hold Congressional hearings on the trillion dollar array of financial derivatives and the market the risk breeders have created that cares not a whit about the costs it imposes on society.

Now is the time for a reckoning about the brain-dead policies that lead to triumph of suburban sprawl, the explosion of unallocated costs of growth, and the massive risk in teetering credit markets.

Think about the Congress for the New Urbanism, the leading organization “promoting walkable, neighborhood-based development as an alternative to sprawl.”

“Countless communities across the country are suffering from the effects of formless sprawl. These communities need tools to combat traffic congestion, pollution, social and economic division, and loss of community interaction. Unfortunately, it is illegal to practice common sense new urbanist planning in many of these places.”

It was the simple genius of Andres Duany, one of the CNU founders, to observe in his home city, Miami, that developers of suburban sprawl had gamed the zoning and building codes so that common sense vanished. And so did fiscal common sense.

The structured debt debacle in housing markets is the reverse side of the costs of suburban sprawl.

There is a growing attention to “explaining” how the US economy got to the point of a financial crisis in credit markets. Economists talk about “the Hy Minsky moment”: how the cycle of easy credit gathers momentum towards excess and implosion.

Barney, it is common sense that the United States Congress should insist on innovations in banking regulations to codify the issuance of financial derivatives, providing incentives to make sure that the next building boom improves the shape of our communities and does not simply revive the failed models of growth that have enriched Wall Street and penalized Americans.

This building boom is over, but the chorus who want Congress to protect public health, or wetlands and the environment, the hundreds of millions of Americans who want transit-oriented communities instead of the costs of suburban sprawl need help.

The crash in housing markets is revealing an American landscape turned into a dump for toxic financial waste, furthering vast inequities in the wealth of society.

We are your constituents. Barney, speak up, now.

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