The 2008 financial crisis led a to a major economic downturn within our nation. As the "Housing Bubble" burst, soaring foreclosure rates emerged. This displaced many citizens and created hardships for countless American Families. Three years later, the housing market is still facing many challenges. Agencies such as, "the Federal Deposit Insurance Corp., the Treasury's Office of the Comptroller of the Currency, the Department of Housing and Urban Development, the Federal Reserve, the Securities and Exchange Commission and the Federal Housing Finance Agency," are searching for ways to prevent further foreclosures and stabilize the housing market. One tool that they propose is that "that home buyers make minimum 20% down payments." They claim that "it would lower foreclosure risk." However like many opponents, I question the effectiveness of this standard and wonder if it could have negative impacts on the housing market.
Opponents like "Sen. Johnny Isakson (R-Ga.) said, "If this rule goes into effect as proposed, it will be the last nail in the coffin for the already crippled U.S. housing market.... Poor underwriting led us into the housing crisis, not down payments." I agree with Jackson that poor underwriting had a major role in the crisis, yet I feel that the lack of regulation also played a major role. I believe that if a national standard for down payments is adopted, it can decrease the risk for future foreclosures. Although it will not eradicate the issue, it will be a major regulatory factor for the housing market.
This proposition won't take affect till 2013 and will face many political challenges from various institutions and interest groups. A declining approval rate and recessionary economy will challenge our President to make a decision. "Key segments of his political base...oppose any move to force working families to come up with more cash to buy a home. The six agencies' proposed rule could be an attractive target for the president's opponents next year." Ultimately the President faces a difficult decision that could impact his re-election as well as the housing market.
On September 15, 2008, Lehman Brothers, one of the largest investment banks in the United States, filed for Chapter 11 bankruptcy. This was the beginning of a global economic crisis of massive proportions with devastating effects. Millions of individuals lost their jobs, savings, and homes. Ultimately the main question that became apparent was, “how did we get here?” There were many culprits and fingers were pointed at various forces. Charles Ferguson’s insightful documentary, “Inside Job,” strategically chronicles and exposes the realities that led to this colossal global economic crisis.
Narrated by Matt Damon, the documentary discloses the fact that this crisis was “no accident” and was caused by an “out of control industry,” the U.S. Financial Sector.
The documentary is divided into five segments: How We Got Here, The Bubble (2001-2007), The Crisis, Accountability, and Where We Are Now.
Alan Greenspan
After the Great Depression, the financial sector was tightly regulated. Local banks were prohibited from speculating with customers’ savings. Investment banks were small private partnerships, where the partners invested their own capital. However in the 1980s, the financial sector soared when the investment banks went public. The Reagan administration started a 30-year period of “deregulation.” Allowing Savings and Loan companies to make risky investments with investors’ deposits cost U.S. taxpayers $124 billion dollars by the end of the 1980s. Executives like Charles Keating were arrested for “looting their companies.” However Reagan appointed economist Alan Greenspan who praised Keating, chairman of the Federal Reserve. Presidents’ Clinton and George W. Bush also reappointed Greenspan.
The next crisis emerged at the end of the 1990s when investment banks were promoting Internet companies that they knew would fail. The cost of this crisis was estimated at 5 trillion dollars. The Securities and Exchange Commission, created during the Depression to regulate investment, did not take any action. In 2002, 10 major investment firms were fined for 1.4 billion dollars and promised “to change their ways.”
By the time George W. Bush became president, the U.S. financial sector had grown substantially. Securitization had linked home buyers, lenders, investment banks, and investors through loan payments. In the old system when someone purchased a home, they made mortgage payments directly to the lender. Since a mortgage had a long life span, lenders were careful with their loans. However in the new system,
“lenders sold the mortgages to the investment banks, the investment bankscombined thousands of mortgages and other loans, including car loans, student loans, and credit card debt, to create complex derivatives called collateralized debt obligation or CDO’s. The investment banks then sold the CDO’s to investors. Now when homeowners paid their mortgages the money went to investors all over the world. The investment banks paid rating agencies to evaluate the CDO’s. Many of them were given a AAA rating, which is the highest possible investment grade… This system was a ticking time bomb…”
At this point, lenders were not concerned if borrowers would be able to repay, and started to make riskier loans. Investment banks were not concerned as well, due to the fact that the more CDO’ s they sold, the higher they profited. Rating agencies, which were paid by the investment banks, were not liable for their ratings and boldly stood by the investment banks.
This unregulated market, along with the financial innovation, which allowed derivatives to be traded globally, resulted in the ultimate economic crisis of 2008.As the housing bubble burst, millions of individuals defaulted on their homes, lost their jobs, and lifetime savings.
The question that I immediately posed was, who are the guilty parties in this scenario? Were they reprimanded for their fraudulent actions? What is the current policy of the government when it comes to regulation of the financial sector? The film reveals that no one has been prosecuted and the current attempts to regulate and reform would be considered “weak.”
The Oscar winning documentary (Best Documentary, Features), Inside Job, was an eye opening film. It laid out the financial crisis in a clear and concise manner. Though it was upsetting and shocking, it exposed the harsh realities that exist within our financial system.
The city of Los Angeles invokes images of fame, sunshine, wealth, and natural beauty, juxtaposed with the reality of millions of inhabitants living in this metropolis. As one of the millions, I always viewed Los Angeles as the most beautiful place in the world. Perhaps the fact of being a native, growing up in an affluent suburban middle class community, my views are limited to my experiences. However as I attended colleges in different parts of the city, outside of the valley suburban bubble, I came to realize that my idealistic views of Los Angeles were somehow limited and biased.
Perhaps one of the staunchest and most stimulating critics of Los Angeles is the well-known public intellectual, Mike Davis. Born in 1946 and raised in El Cajon, California, he was the son of a butcher. When his father became ill, Davis had no choice but to quit high school and become a meat cutter to pay for the soaring insurance bills. He later learned to drive big rigs “which became a selling point with affluent leftist readers impressed by his blue-collar mystique.” Davis’ political views began to take shape after he was kicked out of Reed College and became a full time activist for a group called “Students for a Democratic Society.” He remained as a full time organizer at “SDS” till 1967. From 1969 to 1973, Davis “became active in Teamster United Rank and File, a predecessor of today’s Teamsters for a Democratic Union.” Davis continued his education a year later and attended UCLA to study “economics and history.”
The shaping of his political views took a string of several events. During his “hitchhiking trip” with his second wife, Jan Breidenbach, he met the “International Socialists in London, had tea with Viet Cong in Paris”. A windfall scholarship, from his late father’s union, the Amalgamated Meatcutters, enabled him to go back to Europe and study at the University of Edinburgh. There he joined the Edinburgh branch of International Marxist Group. The Marxist identity of Davis was finalized when he was introduced to some of the “New Left Review crowd”. In 1981 he moved to London and became an editor for the “New Left Review.” He ended up staying in London till 1987 and never finished his PhD at the University of California, Los Angeles. After returning from London, Davis supported himself by teaching at the UCLA planning school part time and working for a furniture moving company. After leaving the working class, two friends helped get him a job at the Southern California Institute of Architecture, where he taught for eleven years. Davis became a popular speaker and in 1998 he received a $315,000 MacArthur Foundation Grant for “exceptionally creative individuals.” Currently Davis is a professor in the Department of Creative writing at University of California, Riverside. Davis’ claim to fame comes from some of his contentious works such as “City of Quartz”, “Ecology of Fear,” and “Prisoners of the American Dream.”
In his acclaimed “City of Quartz”, Davis depicts Los Angeles in a very pessimistic light. As an urban theorist and activist, he chronicles how different economic forces shaped the city and how Los Angeles became a city of dichotomies. Davis claims that Los Angeles has been treated as a commodity, parceled and sold as the utopian paradise. However he states that this process and the forces of globalization rendered Los Angeles into a distopic nightmare.
According to Davis, Los Angeles had a major power struggle issue. In the second chapter of his book, “Power Lines,” he chronicles how power shifts within Los Angeles throughout the twentieth century. Davis challenged the Downtown elite, Otis-Chandler dynasty, since they, “set out to sell Los Angeles – as no city had ever been sold” (City of Quartz 25). However as time progressed the power of the Downtown elite began to diminish. During the 1920’s and 30’s the Jewish population on the Westside began to earn a lot of money from the movie industry. More and more Jewish immigrants came to work in the industry, which created the “new rich” (City of Quartz 124). As power became decentralized, Davis referred to Los Angeles as the city “the city with two heads” (City of Quartz 120), which he also called a “beast with two heads” (City of Quartz 125). He then describes the shift in power during the late 1970’s as the “The New Octopus.” This “new Octopus” had three major components, land bankers, community builders, and land intensive industries.” Davis wanted to point out how the new octopus’ intentions were to “monopolize the development of the metropolitan edge” (City of Quartz 131). Overall Davis despises this boosterism of land and wants to reveal how these forces shaped the city into colliding classes of rich and poor.
What is the role of the public intellectual in the American Society?
I personally believe that public intellectuals can play a valuable role as long as they can realistic, unbiased, and eager to help their society. Within Stephen Mack’s article, “The Decline of the Public Intellectual (?),” he refers to John Donatich who claims,
“common citizens are forever childlike and must be led by a class of
When it comes to the city of Los Angeles, he paints an extremely dark, dangerous picture and his dooms day scenario begs us to think that Los Angeles is a city of extreme poor and rich populations always at the brink of natural disasters, ready to crumble. As a public intellectual I believe he succeeds in creating fear and intimidation through his works. His valid points such as child poverty, diminishing education, and lack of public space, seem to drown in his manifesto like rhetoric.
I believe that the role of the public intellectual is vital as stated in Mack’s article,
“if public intellectuals have any role to play in a democracy—and they do—it’s simply to keep the pot boiling.”
By keeping the “pot boiling” Davis pushed me to see some of the realities of Los Angeles. However, his approach and message creates a scenario of hatred, anger, and panic, while exaggerating some of the problems existing in Los Angeles.
Opponents like "Sen. Johnny Isakson (R-Ga.) said, "If this rule goes into effect as proposed, it will be the last nail in the coffin for the already crippled U.S. housing market.... Poor underwriting led us into the housing crisis, not down payments." I agree with Jackson that poor underwriting had a major role in the crisis, yet I feel that the lack of regulation also played a major role. I believe that if a national standard for down payments is adopted, it can decrease the risk for future foreclosures. Although it will not eradicate the issue, it will be a major regulatory factor for the housing market.
