What Will Happen When It’s Time to Pay the Piper?

FDR-Style Program Urgently Needed to Address Looming Post-Covid Housing Crisis

By Diane Sare, Candidate for U.S. Senate-NY 2022

The national news media is filled with stories about the extreme anxiety of renters and property owners wondering will happen when it is declared that the COVID-19 Pandemic has abated and there is no more forbearance on rent and mortgage payments or property tax payments.  This is a burning question which must not be left to the last minute, and really shouldn’t be up to a local town, county, or even state government to determine.  The bad news is that the reckless early opening of states where the rate of infections had not even begun to decline, means that the nation has not even reached the peak of the first wave of the pandemic, let alone the second, so the end of the emergency is probably not as near as many would hope.  Nonetheless, we all presume that at some point people will return to work (or not, which is a topic for another day), and then will be confronted with several months of lost income and no prospect of making up for it.  Also, business is likely to be slow for months ahead, so what happens to property owners who can’t pay their taxes and mortgages in the meantime?

Imagine the situation which confronts millions of Americans.

Take the case of a renter, who may owe a few months of rent.  Will they be able to pay six months at once after one week back at work, if they are fortunate enough to still have a job?  Unlikely. If the landlord tries to force the issue of the back rents, which the landlord probably needs in order to pay property taxes and utilities, the renter will be evicted. Evicting the delinquent tenant is not going to result in collection of the back rent, however, because obviously a new tenant is not going to cover the back rents of the previous tenant, so either way, the landlord is out several months rent.

There are now 4.3 million Americans who are over 30 days behind in their mortgage payments. In the case of mortgages, it’s different from rent, because the property owner is paying off a specific amount of money and will end up owning the property. In that case, one might consider thinking of this period as a “pause” in payments, and just extend the mortgage another three or four, or however many months at the same rate.  Again, asking the homeowner to double or triple payments will not work.  There will also be an important question about the value of these properties in a few months from now.

What about property taxes? Municipalities depend on property taxes to pay for schools, roads, police and firefighters, public libraries and more.  If building owners cannot pay property taxes due to lack of income, is the town going to put a lien on their property? Will the town or city end up holding dozens of bankrupt, half empty buildings and homes which become a health and welfare hazard? How will the town then pay for those essential services?

Obviously, the priority must be to stabilize the situation and keep people housed, while at the same time funding vital municipal functions. Also, everybody is not hurting equally. Some businesses, like grocery stores, hardware stores, gas stations and other “essential” businesses and construction firms have remained open, and it would be expected that they continue to pay their utility bills and taxes. Many unemployed people have been collecting unemployment compensation, plus $600 per week, so they should be paying at least part of their rent.

All of this needs to be sorted out in an equitable fashion, or at least as fairly as possible, being conscious that it’s better to err on the side of protecting vulnerable people.

In 2007, when the mis-named “mortgage crisis” hit, American economist Lyndon LaRouche drafted legislation modeled on FDR’s “Homeowners Loan Corporation” program, and called it the “Homeowners and Bank Protection Act.”  In 2007-2008, this draft legislation was officially endorsed by over 80 cities in public resolutions, including Buffalo, Philadelphia, Providence, Newark, Detroit, Indianapolis, Akron, Pittsburgh, and others. It was passed in one or both houses of five state legislatures including Rhode Island, Kentucky, Mississippi, Alabama, and Vermont, as well as being introduced in 15 other states, including New York.

The essential points of the Homeowners and Bank Protection Act are as follows:
Congress must establish a Federal agency to place the Federal and state chartered banks under protection, freezing all existing home mortgages for a period of however many months or years are required to adjust the values to fair prices, restructure existing mortgages at appropriate interest rates, and write off all of the cancerous speculative debt obligations of mortgage-backed securities, derivatives and other forms of Ponzi Schemes that have brought the banking system to the point of bankruptcy.

During this transitional period, all foreclosures shall be frozen, allowing American families to retain their homes. Monthly payments, the effective equivalent of rental payments, shall be made to designated banks, which can then use the funds as collateral for normal lending practices, thus recapitalizing the banking system. Ultimately, these affordable monthly payments will be factored into new mortgages, reflecting the deflating of the housing bubble, and the establishment of appropriate property valuations, and reduced fixed mortgage interest rates. It is to be expected that this process of shakeout of the housing market will take several years to achieve. In this interim period, no homeowner shall be evicted from his or her property, and the Federal and state-chartered banks shall be protected, so they can resume the traditional functions, serving local communities, and facilitating credit for investment in productive industries, agriculture, infrastructure, etc.

State governors shall assume the administrative responsibilities for implementing the program, including the “rental” assessments to designated banks, with the Federal government providing the necessary credits and guarantees to assure the successful transition.

Unfortunately, this legislation was not passed by the U.S. Congress in 2007 or 2008. Instead, then Treasury Secretary Hank Paulson stampeded the Congress into approving the first $700 billion bailout, and this was followed by a decade of further bailouts, known today as “Quantitative Easing,” to the tune of over $23 trillion.  Compounding that, since last September, when the big banks lost confidence in overnight interbank lending, the New York Federal Reserve has stepped in with more liquidity pumping, and now has acquired over $7 trillion in “assets” of dubious actual value.
So while it is definitely the case that nothing will be gained by mass evictions of tenants and homeowners, and nothing will be solved by municipalities seizing properties for non-payment of taxes, just halting foreclosures and evictions, while a necessary step, will not solve this crisis.

What is required at this point is nothing less than a full-scale bankruptcy reorganization. The Glass-Steagall Act must be reinstated, and so-called “banks” and “bank holding companies” must be broken up by function. This includes reorganizing the Federal Reserve and creating a Third National Bank, which could issue necessary credit to keep states and cities functioning, while more importantly issuing credit for great projects that raise the standard of living and productivity for the population as a whole.
This means creating a national high speed rail grid, of not less than 40,000 miles of rail, nuclear power for clean abundant energy, continent-wide water management projects like the North American Water and Power Alliance, plans for building new modern cities, and most importantly, funding for science driver projects like NASA’s Moon-Mars mission and the development of fusion energy.
The global health crisis can be turned into a driver for employing thousands of young people who will produce the PPE and ventilators which are desperately needed in developing nations, not to mention building hospitals and sanitation systems. A program to employ millions of Americans in these desperately needed endeavors, including huge training and apprenticeship programs will do far more to stabilize our cities than either defunding the police or arresting more people.

The fact that we were caught so woefully unprepared for the COVID-19 pandemic should be a wake-up call that major change is needed. If you think such grand plans are pie-in-the-sky impossible, ask yourself whether you could have imagined shutting the entire country down due to a pandemic.  Bold action is needed now, and as FDR said, “The only thing to fear, is fear itself.” Millions of people worldwide are watching to see how Americans will respond to the crisis.

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