Gov’t says ‘Things are getting better’ as
Record job losses follow mortgage debacle
Published Jul 22, 2009 2:56 PM
The U.S. Bureau of Labor Statistics published a report on July 2 confirming the
growing economic disaster facing the working class. In June 14.7 million people
were unemployed and the unemployment rate was 9.5 percent. Since the start of
the recession in December 2007, the number of unemployed workers has increased
by 7.2 million and the unemployment rate has risen by 4.6 percentage points.
African Americans have a 14.7 percent unemployment rate, with 12.2 percent for
Latina/os. The unemployment rate for teenagers is 24 percent. The number of
long-term unemployed, those jobless for 27 weeks or more, increased by 433,000
to 4.4 million people, or three in 10 unemployed workers.
The number of people working part-time for “economic reasons,”
meaning involuntary part-time workers, was 9 million, up 4.4 million since the
start of the recession. Another 2.2 million unemployed workers were not counted
in the official statistics because they had not searched for work in the
previous four weeks, including 793,000 “discouraged” workers. The
average workweek for production and nonsupervisory workers fell to 33 hours,
the lowest level on record for the Bureau, which began keeping records in
In Michigan, the jobless rate has surpassed 15 percent, the first time in 25
years that any state has had an unemployment rate so high. Fourteen other
states and the District of Columbia have official unemployment rates surpassing
10 percent: Alabama, California, Florida, Georgia, Illinois, Indiana,
Louisiana, Nevada, North Carolina, Ohio, Oregon, Rhode Island, South Carolina
The Federal Reserve projects that the national unemployment rate may surpass 10
percent by year’s end and warned that the economy may not return to full
health for at least five years. (Washington Post, July 16)
Despite these devastating statistics and projections, President Barack
Obama’s top economic adviser, Lawrence Summers, seems to see a rosy
picture. In a speech on July 17, Summers pronounced that the federal economic
stimulus plan was working and had averted an economic collapse. (New York
Times, July 18)
Roots of the economic crisis
The current recession with its growing unemployment is rooted in the lowering
of wages and elimination of decent-paying union jobs. In “Low-Wage
Capitalism,” author Fred Goldstein cited studies which confirm this
trend. The State of Working America 2006/2007 study reflected that from 1973
until 2005 there was a drop of close to $40 or 7 percent in the weekly earnings
of 80 percent of the working class. A Bureau of Labor Statistics chart noted a
drop of $55 a week in earnings from 1973 to 2004, calculated in 1982 dollars.
When wages decline, workers become increasingly unable to buy back the goods
and services they produce, leading to capitalist overproduction, recession and
What staved off the current crisis for a number of years were the trillions of
dollars that were poured into the capitalist economy through credit schemes.
First the banks extended easy credit through credit cards for a number of
years. When the cards maxed out, the capitalists turned people’s homes
into sources of credit and cash by illegally and artificially pushing up home
values and luring people to put their homes up for collateral in home
refinancing schemes. The banks made tremendous profits by charging huge fees as
well as high interest rates in the subprime and predatory lending boom.
“Sources and Uses of Equity Extracted from Homes,” a study
published by Alan Greenspan and James Kennedy in March 2007, points out just
how much cash was artificially infused into the capitalist economy because of
this. They estimated the amount of this “free cash,” which they
defined as the value of home sales, refinancing or home equity loans, minus
mortgage debt paid off at the time of closing and closing costs.
The figures are enormous. The amount of “free cash” generated was
$757.8 billion in 2002, $1.003 trillion in 2003, $1.170 trillion in 2004, and
$1.4289 trillion in 2005. This infusion of trillions of dollars helped stave
off a recession as it allowed workers and the poor to keep buying consumer
goods and services even as their wages fell.
The artificial bubble bursts
The over $1 trillion a year that fueled consumer spending through the housing
boom has now been eliminated from the economy. The housing bubble has burst and
home values are on a free fall. As a result, home refinancing and equity loans
have virtually halted. Homes are not selling.
Homeowners are paying overvalued mortgages, often with high, upwardly adjusted
interest rates, resulting in the still-growing and record-breaking foreclosure
crisis. RealtyTrac reported on July 15 that the numbers of homes on the verge
of foreclosure rose 15 percent in the first half of 2009. (realtytrac.com)
To put this in perspective, the Obama stimulus plan, which plans to pump $787
billion into the capitalist economy during 2009 and 2010, is about one-half of
the $1.43 trillion that was injected into the economy in 2005 alone through
overvaluing homes and then extending credit on that basis. Workers’
credit cards are still maxed out, so that source of stimulus has also dried
When Summers speaks about the Obama economic plan succeeding, he is probably
looking at bank profits which have rebounded at least temporarily. The banks
were the beneficiaries of a $750 billion federal bailout, trillions more in
cheap money poured in by the Federal Reserve, and hundreds of billions more
through the bailout of AIG.
Even the Home Affordable Program put in place by the Secretary of Treasury is
really a disguised bailout for the banks, while affording relatively minimal
relief to homeowners facing foreclosures.
While some homeowners have been able to utilize the program to get their
interest rates reduced, by calculating payments based on 31 percent of income,
the principal on their loans remains high, though these homeowners do end up
paying a more reasonable rate for an overpriced mortgage. This allows the banks
to keep the mortgages on their books as assets, rather than having to write off
the decline in the real value of the homes.
The lenders are also receiving billions of dollars to participate in the Home
Affordable Program, such as $3.5 billion for Chase, $2.83 billion for Wells
Fargo, $2.6 billion for Bank of America—which includes its subsidiary
Countrywide—and $2 billion for Citi Mortgage (financialstability.gov)
This is on top of the $750 billion in bailout funds they have already
Despite these handouts, the banks have been so slow to implement the Treasury
plan that Secretary Timothy Geithner is actually holding a meeting with them on
July 28 to beg the banks to do more.
What can workers do?
A simple moratorium on foreclosures would go a long way to give the Home
Affordable Program some teeth, but despite talk about a moratorium on
foreclosures in his campaign, President Obama has not uttered the word since
The structural basis for the current unemployment crisis hitting the working
class—the lowering of wages and elimination of decent-paying union jobs
in this era of globalization and low-wage capitalism—has not changed.
Unemployment and lower wages continue to manifest in the growing crisis now
that the capitalists have exhausted artificial means of pumping cash into the
The only answer to the growing unemployment and deepening crisis for the
workers and the poor is for the working class to fight back with an independent
program for jobs or income now and for a moratorium on foreclosures and
evictions. Workers also need to demand a real stimulus plan with trillions of
dollars allocated to rebuild our cities and keep the factories open and
producing for human need and not profit.
Workers must demand enforcement of the federal Full Employment Act, a law on
the books which says that maintaining full employment is the top priority of
the government and Federal Reserve. The demonstrations in September at the G20
summit in Pittsburgh are the next step in building such a movement.
Goldberg is a leader of the Moratorium NOW! Coalition to Stop Foreclosures and Evictions and a Detroit attorney who represents homeowners and renters in their struggle against the banks and lenders.
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