Michigan must declare moratorium on foreclosures

Jerry Goldberg WW photo: John Catalinotto

Speech by Workers World Party National Committee member Jerry Goldberg to WWP’s National Conference on Nov. 17-18, 2007.

In the 1930s, Leon Trotsky wrote an important work entitled “The Transitional Program, the Death Agony of Capitalism and the Tasks of the Fourth International.” Trotsky wrote: “In the epoch of decaying capitalism there can be no discussion of systematic social reforms and the raising of the masses’ living standards. Every serious demand of the proletariat inevitably reaches beyond the limits of capitalist property relations and the bourgeois state.”

He stated: “The strategic task of the next period—a pre-revolutionary period of agitation, propaganda and organization—consists in overcoming the contradiction between the maturity of the objective conditions and the immaturity of the proletariat and its vanguard. It is necessary to help the masses in the process of the daily struggle to find the bridge between their present demands and the socialist program of the revolution. This bridge should include a system of transitional demands, stemming from today’s conditions and from today’s consciousness of wide layers of the working class and unalterably leading to one final conclusion, the conquest of power by the proletariat. The essence of these transitional demands is that they will be directed ever more openly and decisively against the very bases of the bourgeois regime.”

Today we live in an epoch when, even more than the 1930s, the concentration, socialization and integration of production on an international scale has laid the basis for an international socialist revolution and rising living standards worldwide. Yet the very advances in technology are instead leading to greater and greater impoverishment of the working class worldwide, including in the U.S. As the system deteriorates, every strike, every local struggle, poses the question of challenging bourgeois property relations if it is to succeed. Limiting the struggle to the capitalist framework inevitably results in further take-backs and concessions and lowering of living standards.

The problem we face today is that the revolutionary anti-capitalist consciousness that is critical for the workers to fight back on a day-to-day level is sorely lacking, especially among the traditional labor and even civil rights leadership, who come out of a period of gaining a few crumbs through class collaboration with the bosses.

It is through raising transitional demands as described by Trotsky, demands that seem realizable and winnable to the workers, but that in their essence challenge the very bases of capitalist property relations and move the workers in an anti-capitalist, socialist perspective, that we can bridge this gap. This is the art of revolution—how, in a living way, focusing on the day-to-day demands of the workers, we can move the workers in a direction that challenges the system and lays the basis for the overthrow of the system.

In the 1980s, Sam Marcy, a founder and then chairperson of Workers World, discussed applying the transitional program to the particular conditions in the U.S. He discussed how in this country there continues to be a respect for and belief in bourgeois legality among many workers. He raised that in developing transitional demands it was important to raise them in the context of the workers’ legal rights, and then organize the workers to take over the plants and offices, stop evictions and foreclosures, seize warehouses of so-called surplus food, etc., to enforce these legal rights.

In Michigan, we are currently attempting to develop and apply transitional demands to the struggle against the massive foreclosures that are threatening millions of families nationwide with the sudden loss of their homes, and which are affecting the stability of the entire capitalist system.

In the United States, home ownership is widespread among the working class. Some 69 percent of U.S. adults were homeowners as of 2003. Approximately 65 percent of elderly people (above 65 years old) and 30 percent of non-elderly people with incomes below the poverty line are homeowners. About 80 percent of elderly Americans and 73 percent of non-elders whose income is above the poverty line are homeowners.

Traditionally, homeowners got a fixed mortgage for 30 years or so, paid their mortgage, and eventually owned their homes outright or left them to their families. However, in recent years, the finance capitalists, to expand working class purchasing power and stave off a recession, transformed the traditional view of home ownership. Through predatory lending practices, they bombarded workers with offers to have the equity or ownership they had built up in their homes be the collateral for all sorts of loans. Faced with the decline in real wages for most workers over the past few years, these offers were irresistible. The problem was that, in exchange for being given thousands of dollars to immediately spend, the home that you had been paying on for years was put at risk.

The finance capitalists developed two especially notorious loan practices to effectuate this scheme. One was the replacement of the traditional fixed rate mortgage—whereby your interest rate was set when you purchased your home and remained the same during the entire course of your mortgage—with variable mortgages. These are characterized by low interest rates for the first year or two years of the mortgage, and then a dramatic and consistent rise in interest rates, wherein your monthly mortgage payment suddenly doubles or triples after a couple of years. Where, formerly, variable mortgages played a marginal role in the mortgage market, in 2005 some 63 percent of new mortgages were interest-only and adjustable-rate mortgages. The interest-only mortgage is the most notorious, because for a period of years all your payments go to interest, and none to build up any equity in your home.

The second method is called sub-prime loans, loans with high interest rates, up to double the rate published in the paper for mortgages. Sub-prime mortgages are usually tied to variable mortgages—they just start at a higher rate and go up even more quickly. Allegedly, these sub-prime interest rates were to allow people with poor credit to either purchase homes or refinance their existing homes. In fact, statistics have shown that sub-prime mortgages have become the rule for people of color in the U.S., regardless of income or credit status—a reflection of the profound racism that exists in every sector of this country. A 2006 study demonstrated that African Americans with good credit ratings that should have qualified them for low-interest mortgage loans were 37 percent more likely than whites with similar incomes to receive a sub-prime loan, and Latin@s were 28 percent more likely than whites.

Today, at the same time that workers are being hit with layoffs and wage cuts, their monthly house payments are doubling and tripling as the higher variable interest rate kicks in on their mortgages. At the same time, housing values, which were artificially inflated in part by the banks and credit companies writing these new mortgages, are now declining nationwide. As a result, workers who expected to get out from under the higher payments by refinancing their homes using the increase in value as collateral, are finding no takers. They are stuck with vastly increased house payments that they cannot afford, and losing their homes to foreclosure in record numbers.

There were 705,000 foreclosures in 2004 compared to 114,000 foreclosures in 1980 (a recession year). From July to September 2007 alone, 446,726 homes nationwide were targeted with foreclosure activity, twice as many as the year before, and 33.3 percent more than the 333,731 properties placed in foreclosure in the second quarter. While a 1 percent foreclosure rate is considered alarming, in this year’s second quarter 1 percent of prime mortgages and over 9 percent of subprime mortgages were in foreclosure, or about to be in foreclosure. And we haven’t seen anything yet. Some 2 million homes are scheduled for dramatic interest rate hikes in the next two years as higher variable rates reset.

The foreclosure crisis is threatening to bring on a generalized capitalist downturn. The banks and major financial institutions like Merrill Lynch, which hold the mortgages, are losing hundreds of billions of dollars as people can no longer make their payments. The loss in real estate wealth from declining home prices is estimated to range between $2 and $4 trillion. This decline is pulling hundreds of billions in consumer spending out of the economy as the use of one’s home as collateral for cash is being eliminated, threatening to drag the capitalist economy into a full-blown recession.

In Michigan, where we are already in the worst economic crisis since the Depression, with 336,000 industrial jobs having left the state in the last six years, the foreclosure rate is unimaginable. For example, in the predominantly African American city of Detroit, a city of 900,000 residents where 85 percent of the mortgages are sub-prime, over 30,000 homes are currently in foreclosure. That means over 10 percent of the population is faced with imminent homelessness. The foreclosure crisis is hitting every community statewide and is growing daily.

In the face of this crisis, our party is putting forth a simple but revolutionary transitional program. We are calling for the implementation of an emergency moratorium to halt all foreclosures in Michigan. In developing this program, we first noted that Michigan, like every state, invests in the governor the power to declare a State of Disaster or Emergency. While normally these statutes are implemented during natural disasters like floods, fires or hurricanes, in fact the Michigan statutes, like most emergency statutes, refer to man-made disasters as well.

The Emergency Powers of the Governor during a period of man-made or natural disaster invest the governor with broad powers to protect the health and welfare of the people. We are demanding that in light of the disaster for the workers and poor of Michigan created by the corporations and banks, the governor utilize her emergency powers to impose a moratorium on foreclosures and utility shutoffs. In our propaganda advocating this moratorium, we point out that in the 1930s, during the Depression, in Michigan and in 25 other states such a moratorium on foreclosures was actually implemented. The Michigan Moratorium Act extended the redemption period during which homeowners could not have property taken from them after foreclosure from six months to five years. In fact, the U.S. Supreme Court upheld the constitutionality of state foreclosure moratoriums based on emergency declarations, holding that the people’s right to survive supersedes contractual obligations to the banks and finance companies. Of course, this decision was a product of the revolutionary wave led by the Communist Party in the 1930s.

A moratorium on foreclosures is a demand that seems both basic and legal to the workers, but in fact challenges the property rights of the banks and finance capitalists to seize workers’ homes, property rights that are at the core of the capitalist system. We’ve confronted the governor with this demand—I was able to get into a televised town hall meeting where I placed it firmly in front of her, and because it was the only spark in the meeting it was covered in all the media. We are in the process now of building a mass fight-back organizing meeting in Detroit to test whether we can galvanize a real struggle around this demand. We have obtained a list of 1,300 homes in pre-foreclosure in Detroit, and we will be contacting the owners of these homes in the next few weeks to come to this meeting.

We have also tied in our propaganda on the moratorium with opposition to the war in Iraq, pointing out that after implementing the moratorium to give people emergency relief, the governor and legislature should join us in demanding that the over $13 billion stolen from the people of Michigan for the war be restored to fund human needs in this period of economic catastrophe that has hit our state.

In the coming period, as the capitalist economic crisis unfolds and as the inevitable wage cuts and plant and office closings deepen, there will be numerous opportunities to creatively reach out and organize our class. By being mild in manner but bold in matter, by being creative in formulating transitional demands that seem both realizable to the workers but in their essence and in our practice challenge the capitalist system, the opportunities will be there to make great strides in advancing the class struggle. Let’s all become practitioners of the art of revolution to make socialism a reality for the working class in the U.S. and worldwide.